<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-24696
NATIONAL DIAGNOSTICS, INC.
(Name of small business issuer in its charter)
FLORIDA 59-3248917
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
751 WEST BRANDON BLVD.
BRANDON, FLORIDA 33511
(Address of principal executive offices) (Zip Code)
(813) 661-9501
(Issuer's telephone number, including area code)
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE ACT:
UNITS CONSISTING OF ONE SHARE OF COMMON STOCK, WITHOUT PAR VALUE,
AND ONE COMMON STOCK PURCHASE WARRANT
(TITLE OF CLASS)
COMMON STOCK, WITHOUT PAR VALUE
(TITLE OF CLASS)
COMMON STOCK PURCHASE WARRANTS
(TITLE OF CLASS)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [x]
Check if no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for the fiscal year ended December 31, 1996 were
$8,876,652.
As of April 10, 1997, there were outstanding 2,628,577 shares of
Common Stock, no par value. The aggregate market value of the voting stock
held by non-affiliates of the registrant based on the closing bid price
reported on the Nasdaq SmallCap Market as of April 10, 1997 was $1,763,495.
DOCUMENTS INCORPORATED BY REFERENCE:
DOCUMENTS FORM 10-K REFERENCE
TRADITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
Yes [ ] No [x]
Page 1 of 57 Pages
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NATIONAL DIAGNOSTICS, INC.
FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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PART I
<S> <C> <C>
Item 1 Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2 Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . 18
PART II
Item 5 Market for Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . 18
Item 6 Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . 19
Item 7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 8 Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
PART III
Item 9 Directors, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Item 10 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Item 11 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . 50
Item 12 Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Item 13 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
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PART I
ITEM 1 -- DESCRIPTION OF BUSINESS
GENERAL
National Diagnostics, Inc., its wholly-owned subsidiaries, SunPoint
Diagnostic Center, Inc. ("SunPoint"), National Diagnostics/Orange Park, Inc.
("Orange Park"), National Diagnostics/Riverside, Inc. ("Riverside"), Alpha
Associates, Inc. ("Alpha Associates") and Alpha Acquisitions Corp. ("Alpha
Acquisitions"), and Brandon Diagnostic Center, Ltd., a limited partnership of
which Alpha Associates and Alpha Acquisitions are the general and limited
partner, respectively, provide diagnostic imaging services through several
outpatient centers located in the State of Florida. Sundance Partners (a
wholly owned general partnership) owns the land and building associated with
the outpatient center leased to Orange Park. (As used herein, the term
"Company" refers to National Diagnostics, Inc., including its subsidiaries.)
The Company's principal facility is located in Brandon, just east of Tampa.
This facility accounted for 55% of the Company's net revenues in 1996. The
SunPoint facility is located in Ruskin, Florida. The Company acquired,
through its Orange Park subsidiary, substantially all of the assets of an
existing mobile diagnostic imaging business in greater metropolitan
Jacksonville in February, 1995. In August, 1995 the company opened in the
Jacksonville area a third fixed site facility. In September, 1995 the Company
expanded its mobile facilities by adding both a mobile MRI unit and mobile
cardiology unit in the Jacksonville area. In July 1996, the Company opened its
fourth fixed site facility with its Riverside facility in Jacksonville. This
expansion from one facility to four was made financially possible by the
Company's initial public offering in September, 1994 and other credit
arrangements.
The Company provides full service diagnostic imaging services to
patients and physicians in a comfortable, service-oriented environment located
outside of an institutional setting. Diagnostic imaging services provided
include magnetic resonance imaging ("MRI"), computer tomography ("CT"),
ultrasound, nuclear medicine, general radiology and fluoroscopy,
neurodiagnostic testing, and mammography. The Company's diagnostic imaging
procedures are performed by trained radiologic technologists and board
certified radiologists. Medical services are provided at each facility by
interpreting physicians, who are board certified radiologists and members of
physician groups with whom the Company has entered into long-term contracts.
The Company provides management, administrative, marketing and technical
services, as well as equipment and facilities, to its interpreting physicians.
The Company accepts Medicare, Medicaid, Worker's Compensation and most
commercial insurance. The Company has contracted with many health maintenance
organizations and preferred provider organizations. In 1995 and 1996, the
Company's total net revenues were $6,232,000 and $8,919,000, respectively,
reflecting approximately 29,000 and 52,000 respective diagnostic imaging
procedures.
The Company was incorporated in Florida in June of 1994. The
Company's executive headquarters are located at 751 West Brandon Blvd.,
Brandon, Florida 33511, and its telephone number is (813) 661-9501.
DIAGNOSTIC IMAGING SERVICES INDUSTRY
Overview
During the past ten years, the diagnostic imaging industry has
experienced substantial growth as well as a major shift from inpatient to
outpatient delivery of services. Due to the contrast and detail of a high
quality MRI scan, the use of MRI equipment frequently facilitates the
identification of disease and disorders of a patient and often reduces the
amount and cost of care needed to treat the patient and the need for certain
invasive
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procedures, like exploratory surgery. The number of MRI units in operation has
increased from fewer than 100 in 1984 to more than 4,800 in 1994. This rapid
growth resulted from increasing acceptance by physicians and patients of MRI as
well as an increasing need for MRI usage in imaging different body organ
systems and disease conditions. New software programs and hardware
capabilities, coupled with new contrast agents (chemicals administered to the
patient that enhance the signal generated by body tissues), are anticipated to
expand further the usage of the technology by physicians.
In addition, inpatient health care cost containment pressures have led
to the growth of outpatient delivery of services. Prior to 1983, most imaging
services were delivered to patients in a hospital radiology department. In
1983, the federal government instituted the Prospective Payments System, which
limited the amount paid by Medicare to hospitals for inpatient care for most
categories of diseases. This restrictive reimbursement environment was a prime
factor in the shift from inpatient to freestanding, outpatient imaging centers,
since hospitals became less likely to purchase or lease expensive diagnostic
imaging equipment.
Ownership of outpatient diagnostic imaging centers remains highly
fragmented, with no dominant national provider. Most of the equity in
outpatient centers is owned by hospitals, independent radiologists, management
companies or other groups. This fragmentation provides the Company with
potential acquisition opportunities.
Equipment and Modalities
Diagnostic imaging systems are based on the ability of energy waves to
penetrate human tissue and generate images of the body which can be displayed
either on film or on a video monitor. Imaging systems have evolved from
conventional x-rays to the advanced technologies of MRI, computerized
tomography, ultrasound, nuclear medicine, neurology and mammography. The
principal diagnostic imaging modalities used by the Company include the
following:
Magnetic Resonance Imaging. MRI is a sophisticated diagnostic
imaging system that utilizes a strong magnetic field in conjunction
with low energy electromagnetic waves which are processed by a
dedicated computer to produce high resolution multiple images of body
tissue. A principal virtue of MRI imaging is that atoms in various
kinds of body tissue behave differently in response to a magnetic
field, enabling the differentiation of internal organs and normal and
diseased tissue. During an MRI procedure, a patient is placed in a
large, cylindrical magnet. Multiple images to various planes and
cross-sections can be created without moving the patient. The images
can be displayed on a computer screen, stored within the computer, or
transferred to film for interpretation by a physician and retention in
a patient's file. Unlike computerized tomography and general
radiology and fluoroscopy, MRI does not utilize ionizing radiation
which can cause tissue damage in high doses. As with many other
diagnostic imaging technologies, MRI is generally non-invasive.
Computerized Tomography. CT is used to detect tumors and
other conditions affecting the skeleton and internal organs. CT
provides higher resolution images than conventional x-rays, but
generally not as well defined as those produced by MRI. During a CT
procedure, a patient is placed inside a ring on which a rotating x-ray
tube is mounted. A dedicated computer directs the movement of the
x-ray tube to produce multiple cross sectional images of a particular
organ or area of the body.
Ultrasound. Ultrasound has widespread application,
particularly for procedures in obstetrics, gynecology and cardiology.
Ultrasound imaging relies on the computer-assisted processing of sound
waves to develop images of internal organs and the vascular system.
The sound waves are generated and
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recorded by probes that are either passed over or inserted into the
body. A dedicated computer processes sound waves as they are
reflected by body tissue, providing an image that may be viewed
immediately on a computer screen or recorded continuously or in single
images for further interpretation.
Nuclear Medicine. Nuclear medicine is used primarily to study
anatomy and metabolic functions. During a nuclear medicine procedure,
short-lived radioactive isotopes are administered to the patient by
ingestion or injection. The isotopes break down rapidly, releasing
small amounts of radioactivity that can be recorded by a gamma or
scintigraphic camera and processed by a computer to produce a flat
image of various anatomical structures.
General Radiology and Fluoroscopy. The most frequently used
type of imaging equipment, radiology uses "x-rays" or ionizing
radiation to penetrate the body and record its images on film.
Fluoroscopy uses a video viewing system for real-time monitoring of
the organs being visualized.
Neurology. Neurological diagnostic testing, consisting of
nerve conduction studies, electromyography, evoked-potentials and
electroencephalography (EEG), is used for the evaluation of patients
with suspected radiculophy of the cervical and lumbar nerves and
diseases of the nervous system, such as multiple sclerosis (MS).
Neurological diagnostic testing equipment is designed to assess the
integrity, conduction ability and functioning of the nervous system
through electro-physiological stimulation.
Mammography. Mammography is a specialized form of radiology
equipment using low dosage x-rays to visualize breast tissue. It is
the primary screening tool for breast cancer.
THE COMPANY'S GROWTH STRATEGY
The Company's strategy for growth involves increasing the revenues and
profitability of its existing facilities, establishing and developing
additional diagnostic imaging centers and acquiring existing imaging
facilities in certain target markets, as well as expanding its existing
operations to include mobile diagnostic imaging capabilities.
Expansion of Existing Facilities.
The Brandon facility is currently a full service imaging facility.
The Brandon facility was expanded in March, 1995 to include a Center for Women
that focuses on providing additional mammography and ultrasound services. In
December of 1996 the Company entered into a commitment to purchase a new
non-surgical mammography biopsy unit which will expand the services offered in
its Center for Women.
In June, 1995, the Company relocated Orange Park's principal facility
from Middleburg to Orange Park and expanded the range of diagnostic imaging
services offered thereby. With the addition of a mobile MRI unit in September,
1995 to its modalities Orange Park became a full-service imaging facility.
See "--The Orange Park Facility."
In September, 1995, a mobile cardiology unit was placed into service
and expanded its service area in the Northeast Florida to the greater
Jacksonville area, Fernandina Beach, Lake City and Palatka.
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The SunPoint Diagnostic Center is a full-service imaging facility,
with the exception of MRI. The Company intends to add MRI capabilities to the
SunPoint facility at such time as the demand for such services warrants the
acquisition of MRI equipment. See "The SunPoint Facility."
In July of 1996, a new full service center "Riverside" was opened in
the Riverside area of Jacksonville, Florida. The new facility utilizes the
mobile MRI unit form Orange Park to offer MRI services.
Center Development and New Center Acquisitions.
Currently, the Company intends to defer its external expansion in
1997; focusing more directly on the continuing effort to build efficiencies and
profitability into existing new start ups.
The Company's long range external growth strategy includes the
development and/or acquisition of diagnostic imaging facilities in target areas
identified by management initially in the State of Florida, with the potential
for expansion to other regions in the Southeastern United States. The Company
intends to operate each newly developed or acquired facility through a
separate, wholly-owned subsidiary. In seeking suitable locations for the
development of new centers or the acquisition of existing centers, the Company
will focus primarily on demographic studies and its analysis of local
competition, physician referral patterns and imaging services supply and
demand. Also, the Company will focus on its ability to either utilize the
professional services of its existing interpreting physicians to interpret test
results or affiliate with other qualified interpreting physicians.
Installation and maintenance costs on equipment can be substantial,
particularly with respect to MRI units. Consequently, new facilities initially
will include most or all of the modalities offered by the existing Brandon
facility, with the exception of MRI. MRI has historically accounted for
approximately 20-30% of the Company's revenues. MRI procedures are expensive
to perform and have historically generated high margins for the Company. Due
to the significant capital expenditure required to install and maintain MRI
equipment, however, a minimum average number of procedures must be performed
daily at each facility offering MRI to cover fixed costs associated with MRI
equipment. As a result, the Company currently intends to perform all MRI
procedures required by its facilities not offering MRI directly either at the
Company's nearest full service facility or via a mobile MRI unit acquired by
Orange Park and placed into operation in September, 1995. The Company expects
to provide MRI services in this manner until such time as management determines
that the demand for MRI procedures at a particular facility is at a level that
will generate revenue sufficient to cover fixed costs associated with MRI
equipment.
The Company also believes that it can successfully acquire existing
imaging centers. Acquisition opportunities have diminished that were tied to
the enactment of federal and state laws and regulations restricting physician
referrals to health care facilities in which such physicians have a financial
interest and limiting permissible affiliations between tax exempt hospitals
and "for profit" outpatient medical centers. See "Business-Government
Regulation." The required divestitures of physician-owned centers have already
occurred. Nevertheless, management believes that acquisition opportunities
continue to exist due to the fragmented nature of the imaging center business.
The Company believes that it can successfully integrate the operations
of its new facilities and any facilities that it chooses to acquire by
leveraging its existing corporate infrastructure. No assurances can be given,
however, that adequate financing will be available to fund the development of
this or any other new facilities.
Increased Mobile Diagnostic Imaging Capabilities.
The Company's growth strategy also includes expanding its mobile
diagnostic imaging capabilities. In January, 1995, the Company entered into an
agreement with an established group of cardiologists in Orange Park, Florida to
provide mobile nuclear cardiology imaging services. In September 1995 the
Company placed into
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operation a fully operational mobile unit to service such group as well as
other cardiological centers and specialists. See "--NDCI Mobile Services."
The Company's Orange Park facility currently provides mobile ultrasound and
neurological diagnostic imaging services. The Company expanded the operations
of its Orange Park subsidiary in September, 1995 with the inclusion of mobile
MRI services. See "--The Orange Park Facility."
THERE CAN BE NO ASSURANCES THAT THE COMPANY CAN OR WILL SUCCESSFULLY
IMPLEMENT ITS CENTER GROWTH OR EXTERNAL GROWTH STRATEGIES.
Imaging Equipment.
The Company obtains its imaging equipment from large, well-established
companies, including Siemens Medical Systems Inc., Toshiba, Inc., Lo-Red Co.
and Raytheon, Inc. The Company is not dependent on any one supplier and
believes that it has satisfactory relationships with its suppliers.
Equipment acquisition costs can vary dramatically, depending upon the
model and peripheral equipment acquired. The Company reviews the technological
capabilities of new product offerings in order to improve and upgrade equipment
when necessary. Currently, equipment costs range as follows:
<TABLE>
<CAPTION>
EQUIPMENT PRICE RANGE
--------- -----------
<S> <C> <C>
MRI $900,000 to $1,700,000
CT 300,000 to 900,000
Ultrasound 100,000 to 250,000
Nuclear Medicine 250,000 to 400,000
Radiology 40,000 to 75,000
Fluoroscopy 200,000 to 350,000
Mammography 50,000 to 80,000
Neurology 25,000 to 60,000
</TABLE>
Installation and maintenance costs on the equipment can be
substantial, particularly with respect to MRI units. Installation costs can
range from $35,000 to $125,000 for an MRI unit, depending on the particular
installation circumstances.
The Company generally obtains financing for its equipment from lenders
and lessors, with the equipment and other assets serving as security for the
loans. Leases for smaller medical equipment average three years and leases for
larger medical equipment are for seven years. Certain of such loans are
personally guaranteed by Mr. Alliston.
Operations
The Company provides diagnostic imaging services to patients referred
by physicians who are either in private practice or affiliated with managed
care providers or other groups. Patients are scheduled for an appointment,
informed of any medications needed for the test, and pre-qualified with respect
to their medical requirements and insurance coverage by Company personnel.
Procedures are designed to avoid the admission and administrative complexities
of in-hospital diagnostic imaging services. All of the Company's imaging
services are performed on an outpatient basis by trained medical technologists
under the direction of the interpreting physician. Following the diagnostic
procedures, the images are reviewed by the interpreting physicians, who prepare
a report of these tests and their findings. These reports are transcribed by
Company
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personnel and then delivered to the referring physicians. The interpreting
physicians are board certified specialists in radiology, nuclear medicine,
nuclear cardiology or neuroradiology, as appropriate. Such interpreting
physicians are members of an independent health care provider group with which
the Company has entered into a long-term contract, and are not employees of the
Company. The Company is not engaged in the practice of medicine.
Typically, patients are charged an all-inclusive fee for the imaging
studies. The administrative staff is responsible for billing and collecting
the fee.
The Company contracts for interpreting physician services for which
typically the interpreting physician receives a fixed percentage of monthly
collections. The Company believes that the structure of its compensation
arrangement with its interpreting physicians encourages high quality service
and fairly compensates these physicians for the interpretation services they
provide. The Company's agreement with its interpreting physicians is typically
for a three-year term and requires each physician to obtain medical malpractice
insurance.
THE BRANDON, FLORIDA FACILITY
The Brandon, Florida facility was established in 1991 as a
full-service diagnostic facility specializing in outpatient radiology. The
Brandon facility generally provides medical diagnostic services to the general
population living within approximately ten miles of Brandon, Florida. The
Brandon, Florida area population, currently in excess of 250,000, consists
primarily of an expanding base of middle income families and retirees. In 1995
and 1996, the Brandon facility generated net revenues of approximately
$3,900,000 and $4,900,000, respectively, reflecting approximately 21,000 and
32,000 respective diagnostic imaging procedures.
The Brandon facility currently has one unit for each of MRI, CT and
nuclear medicine and two units for each of mammography, radiology, ultrasound
and fluoroscopy.
Annual expenses for equipment maintenance and repairs at the Brandon
facility were approximately $137,000 and $114,000 for the fiscal years ended
December 31, 1995 and December 31, 1996, respectively. The Company typically
enters into agreements with equipment manufacturers or other third parties for
equipment maintenance.
Patients at the Brandon facility are invoiced in the name of Brandon
Diagnostic Center. The interpreting physician's P.A. with which the Company
has currently contracted for interpreting physician services at the Brandon
facility receives a fixed percentage (fourteen percent) of monthly collections.
Brandon facility's interpreting physician is certified by the American
Board of Radiology. The interpreting physician's P.A. is responsible for
subcontracting with additional physicians to assure adequate coverage during
peak times, absences, etc. The following is a brief biographical summary of
the Brandon facility's principal interpreting physician:
DR. ROBERT D. MARSHALL, M.D. received his Doctor of Medicine degree
from the University of Miami School of Medicine, Miami, Florida in June, 1974.
Dr. Marshall performed his internship and residency from 1974 to 1978 at the
University of South Florida, School of medicine, Tampa, Florida. In February,
1987 Dr. Marshall had taken a fellowship in MRI at Huntington Memorial
Hospital, Pasadena, California. In addition to MRI, Dr. Marshall has received
training and experience in computed tomography, mammography, ultrasound and
nuclear medicine in 1977 and 1978.
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The Brandon facility is open from 7:30 a.m. to 6:00 p.m. Monday,
Wednesday & Friday, 7:30 a.m. to 8:00 p.m. Tuesday and Thursday, 8:00 a.m. to
2:00 p.m. on Saturdays and on an as-needed basis on Sundays.
THE SUNPOINT FACILITY
The Company, through its SunPoint subsidiary, opened its SunPoint
Diagnostic Center in Ruskin, Florida, approximately twenty miles south of
Brandon, in November, 1994. This facility is located near the Sun City Center
retirement community. The Ruskin area has a total population of approximately
45,000, including roughly 38,000 retirees. The SunPoint facility is a
full-service imaging facility, with the exception of MRI. It currently has one
unit for each of CT, ultrasound, nuclear medicine, mammography, radiology and
fluoroscopy. The equipment located at the SunPoint facility is obtained from
the same manufacturers as the Brandon facility equipment.
Consistent with the Company's expansion strategy, the Company intends
to add MRI capabilities to the SunPoint Diagnostic Center only as the demand
for such services develops and warrants the acquisition of MRI equipment.
Until such time, all MRI procedures required by SunPoint facility patients will
be performed at the nearby Brandon facility. All SunPoint patients requiring
MRI procedures are offered a free shuttle service to and from the Brandon
facility.
The operational procedures at the SunPoint facility are virtually
identical to those described above under "Operations," the patients are
invoiced in the name of SunPoint Diagnostic Center. The SunPoint facility is
staffed by fourteen employees and one interpreting physician, who rotates with
the other interpreting physician serving the Brandon facility. The
interpreting physician's P.A. with which the Company has currently contracted
for interpreting physician services at the SunPoint Diagnostic Center receives
a fixed percentage (fourteen percent) of monthly collections.
The SunPoint facility is currently open from 7:30 a.m. to 5:30 p.m.
Monday through Friday, and on an as needed basis on Saturdays.
THE ORANGE PARK FACILITY
In February, 1995, the Company, through its Orange Park subsidiary,
acquired substantially all of the assets of Medical Imaging Consultants, Inc.
and certain of its affiliates, providers of both mobile and fixed site
ultrasound and related diagnostic testing services in the cardiac, cerebral
vascular and neurophysiology areas. (See Note 12 to the Consolidated Financial
Statements.)
Orange Park currently provides mobile and fixed diagnostic services in
Clay, Duval, Nassau and St. Johns counties in northeastern Florida. Its
principal facility is located in Orange Park, Florida, where it has three
mobile units for neurology, two units for ultrasound, one each for nuclear
cardiology and MRI. All equipment at the Orange Park facility is either owned
directly or leased through an independent leasing company. The Orange Park
facility became a full service imaging facility, with its mobile Facilities, by
September, 1995. The Company has one unit for each for CT, ultrasound,
mammography, radiology, and fluoroscopy at its Orange Park subsidiary. This
mobile unit is used to provide MRI services at Orange Park and any future
facilities developed by the Company in northeastern Florida. See "--The
Company's Growth Strategy--Center Development and New Center Acquisitions."
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Orange Park follows the same operational procedures as the Company's
other facilities, except that patients are invoiced directly in the name of
Orange Park. The Orange Park facility is currently staffed by thirty-four
employees. All interpreting services are provided by eight interpreting
physicians who are members of an independent health care provider group with
which the Company has entered into a long-term contract. These physicians are
not employees of the Company and the Company is not engaged in the practice of
medicine. The interpreting physician group with which the Company has
contracted for interpreting physician services at the Orange Park facility
receives a monthly fee equal to 17% of the monthly collections.
The Orange Park facility is currently open from 7:30 a.m. to 5:30 p.m.
Monday through Friday, and on an as- needed basis on Saturdays.
THE RIVERSIDE FACILITY
The Company, through its Riverside subsidiary, opened in July of 1996
the Riverside Diagnostic Center in the Riverside area of Jacksonville, Florida.
The facility is located in proximity of a thousand bed hospital in an old
"upscale" residential area of Jacksonville. The Riverside facility is a
full-service imaging facility, inclusive of mobile MRI services which it
obtains form the Orange Park facility (see Orange Park Facility). It currently
has one unit each for CT, ultrasound, nuclear cardiology, nuclear medicine and
radiology and two units each for mammography and fluoroscopy.
Riverside follows the same operational procedures as the Company's
other facilities, except that patients are invoiced directly in the name of
Riverside. The Riverside facility is currently staffed by eight employees.
All interpreting services are provided by a group of physicians who received a
percentage (15% of the first $200,000 and 20% thereafter) of monthly
collections.
The Riverside facility is currently open from 7:30 a.m. to 5:30 p.m.
Monday through Friday.
CARDIOLOGY MOBILE SERVICES
In January, 1995, the Company, through its cardiology subsidiary,
entered into an exclusive agreement with Diagnostic Cardiology Associates, an
established group of 18 cardiologists based in Jacksonville and other physician
groups in northeast Florida, to provide mobile nuclear cardiology imaging
services. The Company acquired a mobile unit and placed it into operation in
September, 1995. Since then the Company has expanded its operations to
Fernandina Beach, Lake City and Palatka, Florida. The Company will seek to
enter into similar arrangements with other groups of cardiologists, but no
assurances can be made that such opportunities exist or can be realized. In
May 1996, the wholly owned cardiology company was merged into Orange Park.
MARKETING
The Company provides diagnostic imaging services to patients referred
by physicians who are either in private practice or affiliated with managed
care providers or groups. Consequently, the Company's marketing program
focuses on establishing and maintaining referring physician relationships by
efficiently providing needed medical services to patients of those physicians,
and maximizing reimbursement yields. The Company's marketing program targets
selected market segments consisting of local physicians who may have a need for
diagnostic imaging services. The Company utilizes a variety of marketing
techniques in its market areas to educate physicians in the availability and
capabilities of the various imaging technologies, including personal visits by
the Company's clinical coordinators to local physicians and their staffs,
direct mailings of marketing
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brochures and participation in seminars on recent developments in diagnostic
imaging and related technology.
The Company's clinical coordinators seek to maintain the satisfaction
of referring physicians by frequent contact with them, both to ascertain the
physicians' needs and, when appropriate, to seek suggestions on how to improve
the Company's delivery of services. The Company continually seeks to improve
the quality of its services by encouraging interaction between referring
physicians and interpreting physicians. The Company has also developed a
database containing referring physician and patient information in order to
more effectively coordinate its marketing activities with respect to its
referring physicians. The Company has joined the Florida Imaging Network,
Inc., an association recently established to develop and operate a statewide
diagnostic imaging services network to interface with managed care providers in
the State of Florida. The Company believes that this will provide an
additional method of expanding its referral base.
REIMBURSEMENT, BILLING AND COLLECTION
The Company charges patients a fee for each imaging study performed,
which is billed in the name of the applicable diagnostic center. The Company
generally accepts assignment by the patient of payment from insurers and is
reimbursed for services performed by payment, directly and indirectly, from
third-party commercial insurers, managed care organizations, government payors,
workmen's compensation and other sources. In many instances, the patient is
responsible for payment of a co-payment or deductible and, in some instances,
the patient remains responsible for payment of the entire fee. The extent to
which services provided by the Company are reimbursable depends upon a number
of factors, including the type of insurance coverage carried by the patient,
the type of imaging services provided to the patient, prevailing practices in
the relevant geographic area and the identity of the third-party payor.
The following table sets forth the approximate percentages of
collections received during 1996 in each of the following categories:
<TABLE>
<CAPTION>
PERCENT OF
SOURCE COLLECTIONS
------- -----------
<S> <C>
Managed Care/HMO 33%
Private Insurance 37
Medicare/Medicaid 18
Private Pay 8
Workmen's Compensation 4
</TABLE>
The Company maintains a competitive billing strategy based upon
evaluation of available pricing data. The Company maintains sufficient price
flexibility to enable it to compete with other MRI imaging services provided in
the local community.
Obtaining the maximum amount of allowable reimbursement and
collecting receivables on a timely basis are critical to the Company's success
and are a priority of management. The Company has developed and is continuing
to develop systems to process claims. The Company endeavors to provide
complete and accurate claims data to the relevant payor sources to obtain the
maximum amount of allowable reimbursement and to accelerate the collection of
accounts receivable. Approximately seventeen of the Company's employees are
involved in reimbursement, billing and collection activities. There can be no
assurance that the Company will
11
<PAGE> 12
be successful with respect to the foregoing.
Third-party payors, including Medicare, Medicaid and certain
commercial payors, have taken extensive steps to contain or reduce the costs of
health care. A significant change in coverage or a reduction in payment rates
by third-party payors could have a material adverse effect upon the Company's
business. In 1995 and 1996, approximately 0.3% and 0.8%, respectively, of the
Company's total revenues were derived from providing imaging services to
patients involved in personal injury claims. The Company sometimes experiences
significant collection delays in connection with these services due to the fact
that the Company may not be paid for its services until the underlying legal
action is resolved.
COMPETITION
The outpatient diagnostic imaging industry is highly competitive.
The Company believes that its principal competitors are hospitals, independent
or management company-owned imaging centers, some of which are owned, in whole
or in part, by physician investors, and mobile diagnostic units. Some of these
competitors have greater financial and other resources than the Company. The
Company's competitors in the immediate Brandon area are a 120 bed hospital
providing full inpatient service and a new outpatient diagnostic center opened
in January of 1997. The Brandon facility has experienced a 1% decline in gross
revenues in the 1st quarter of 1997 compared to 1996 but is not able to
determine if this is from competitor pressures since its case load has
continued to increase. The Company's sole competitor in the Ruskin area is a
50 bed hospital also providing full inpatient service. The Company has many
competitors in the Jacksonville area, including hospitals, independent or
management company-owned imaging centers and mobile diagnostic units, but, to
the best of management's knowledge, none of these competitors is a full
modality center offering mobile and fixed site diagnostic imaging services.
The Company believes that as a result of its operating efficiencies,
it can provide outpatient diagnostic services more competitively than other
local providers. Principal competitive factors include quality and timeliness
of test results, type and quality of equipment, facility location, convenience
of scheduling and availability of patient appointment times. The Company may
benefit, or experience increased competition, to the extent proposed or future
regulations will reduce self referrals from physician investors and make their
referrals part of the market for which any center may compete. The Company
currently has no physician investors and, therefore, derives 100% of its
revenues from non-investor referrals.
GOVERNMENT REGULATION
The health care industry is highly regulated at the federal, state
and local levels. Although the following is not an exhaustive discussion, it
summarizes the key regulatory factors that affect the Company's operations and
development activities:
Certificates of Need and Licensing. Under Certificate of Need laws,
a health care provider is typically required to substantiate the need for, and
financial feasibility of, certain expenditures related to the construction of
new facilities, commencement of new services or purchases of medical equipment
in excess of statutory thresholds. The provision of outpatient health
services, including outpatient MRI, is exempt from Certificate of Need review
in the State of Florida. The operations of outpatient imaging centers are
subject to federal and state regulations relating to licensure, standards of
testing, accreditation of certain personnel and compliance with governmental
reimbursement programs. The Company is required to obtain and maintain general
business licenses from certain counties in which it operates centers, as well
as licenses from the State of Florida for the
12
<PAGE> 13
handling and disposal of radioactive materials used in nuclear medicine
procedures. Radioactive materials are currently delivered daily to the
Company's Brandon, SunPoint and Cardiology facilities. Medical waste
contaminated with radioactive material is placed in locked hazardous waste
containers and picked up daily for disposal by a licensed hazardous waste
vendor. The Company is subject to surprise inspection by nuclear inspectors.
Although the Company believes that it has obtained all necessary licenses, the
failure to obtain a required license could have a material adverse effect on
the Company's business. The Company believes that diagnostic testing will
continue to be subject to intense regulation at the federal and state levels
and it cannot predict the scope and effect thereof.
Medicare/Medicaid Anti-Kickback Provisions. The Medicare/Medicaid
Anti-Kickback Statute (the "Anti-Kickback Statute") prohibits the offering,
payment, solicitation or receipt of any form of remuneration in return for the
referral of Medicare or Medicaid patients for any item or service that is
covered by Medicare or Medicaid. Violation of the Anti-Kickback Statute is
punishable by substantial fines, imprisonment for up to five years or both. In
addition, the Medicare and Medicaid Patient and Program Protection Act of 1987
(the "Protection Act") provides that persons guilty of violating the
Anti-Kickback Statute may be excluded from participating as providers or
suppliers in the Medicare or Medicaid programs. Investigations leading to
prosecutions and/or program exclusion may be conducted by the Office of the
Inspector General ("OIG") of the United States Department of Health and Human
Services ("HHS"), the United States Department of Justice and State of Florida
agencies.
Under the Anti-Kickback Statute, law enforcement authorities, HHS and
the courts are increasingly scrutinizing arrangements between health care
providers and referral sources (such as physicians) in order to ensure that the
arrangements are not designed as a mechanism to exchange remuneration for
patient referrals. This scrutiny is not limited to financial arrangements that
involve a direct payment for patient referrals, but extends to payment
mechanisms that carry the potential for inducing Medicare or Medicaid
referrals, including situations where physicians hold investment interests in,
or compensation arrangements with, a health care entity to which such
physicians refer patients.
Safe Harbor Regulations. The Protection Act directed the OIG to
publish regulations delineating health care payment practices that would not be
subject to criminal prosecution and would not provide a basis for program
exclusion under the Anti-Kickback Statute. In 1991, the OIG published final
safe harbor regulations that specify the conditions under which certain kinds
of financial arrangements, including (i) investment interests in public
companies, (ii) investment interests in small entities, (iii) management and
personal services contracts, and (iv) leases of space and equipment, will be
protected from criminal prosecution or civil sanctions under the Anti-Kickback
Statute. The OIG has stated that failure to satisfy the conditions of an
applicable "safe harbor" does not necessarily indicate that the arrangement in
question violates the Anti-Kickback Statute, but means that the arrangement is
not among those that the "safe harbor" regulations protect from criminal or
civil sanctions under that law.
One provision of the Safe Harbor Regulations includes a public
company exception applicable to investment in the Company by referring
physicians. The Company currently does not qualify for this exception. A
return on investment, such as a dividend or interest, is not a prohibited
payment if, within the previous fiscal year or 12 month period, the public
company possesses more than $50 million in undepreciated net tangible assets
which are related to the furnishing of health care items and services and the
Company meets all five of the following standards:
i) Equity securities must be registered with the Commission under
15 U.S.C. 78l(b) or (g);
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<PAGE> 14
ii) The investment interest of an investor in a position to make
or influence referrals to, furnish items or services to, or
otherwise generate business for, the Company must be obtained
on terms
equally available to the public through trading on a
registered national securities exchange or on Nasdaq;
iii) The Company or any investor must not market or furnish the
Company's items or services to passive investors
(non-management shareholders) differently than to
non-investors;
iv) The Company must not loan funds to or guarantee a loan for an
investor who is in a position to make or influence referrals
to furnish items or services to, or otherwise generate
business for the entity if the investor uses any part of the
loan to make the investment; and
v) The amount of payment to the investor in return for the
investment interest must be directly proportional to the
amount of the investor's capital investment.
The Company does not meet the $50 million net tangible assets
criterion and, therefore, in order to avoid any issue as to fraud and abuse
compliance, a physician who owns any of the Company's securities might be
prohibited from making any patient referrals to the Company's diagnostic
imaging facilities, whether or not the remaining standards have been complied
with.
With respect to the arrangements between the Company and its
interpreting physicians, there is a safe harbor for personal service agreements
which requires that such arrangements be in writing and last for at least one
year, and that the compensation paid to the physicians be based on the fair
market value of the professional services they provide and not on any referrals
or business generated between the parties. To the extent that the compensation
arrangements with the interpreting physicians do not fit within all of the
requirements of the safe harbor, they are not per se illegal, but in order to
avoid all risk of fraud and abuse issues, the interpreting physicians would not
be permitted to make any referrals to the Company for imaging services.
Florida Prohibition of Referrals. On March 13, 1992, the Florida
Legislature passed the "Patient Self-Referral Act of 1992" (the "1992 Act"),
which took effect April 9, 1992. The Act, as amended in 1993, prohibits
physicians' referrals of patients for designated health services, including
diagnostic imaging services, to facilities in which they own an investment
interest. Therefore, physicians who own Common Shares or Common Share Purchase
Warrants are prohibited from making any patient referrals to the Company's
diagnostic imaging facilities.
Medicare Reimbursement. Diagnostic imaging services provided to
Medicare beneficiaries are reimbursed based on Medicare's Resource-Based
Relative Value Scale, which sets limits on reimbursement for both the technical
and physician components of these services. There is no guarantee that the
amount paid by Medicare, either now or in the future, will be adequate to meet
the Company's costs of providing the imaging services. There is also no
guarantee that the U.S. Government will not enact law or adopt regulations
restricting the ability of free-standing diagnostic imaging centers from
providing services to Medicare or Medicaid patients, although the Company is
currently unaware of any proposal to do so.
Omnibus Budget Reconciliation Act of 1993. As part of the Omnibus
Budget Reconciliation Act of 1993, Congress passed the "Stark II" law, which
prohibits a physician from referring Medicare and other federal program
patients for designated health services, including imaging services, to certain
entities with which the
14
<PAGE> 15
physician or a member of his or her immediate family has a financial
relationship. A "financial relationship" would include either an ownership
interest in, or compensation arrangement with, the entity. The Stark II law
has been incorporated into Section 1877 of Title XVIII of the Social Security
Act. The Company, as a provider of radiology and other diagnostic services,
would be such an entity, and therefore, a physician with such a financial
relationship with the Company could not make referrals of Medicare or Medicaid
business to the Company, unless the relationship falls within one of the
limited exceptions offered by Stark II. These limitations became effective
January 1, 1995.
Stark II provides an exception for referrals by a physician who, or a
member of whose immediate family, owned investment securities in a public
entity which may be purchased on terms generally available to the public, but
only if the entity met the following criteria: (i) its securities are listed on
a recognized stock exchange or traded on Nasdaq; and (ii) the entity has at the
end of its most recent fiscal year or on average during the previous three
fiscal years, stockholder equity exceeding $75 million. The Company does not
meet these criteria and, therefore, a physician who owns Common Shares or
Common Share Purchase Warrants of the Company is prohibited from making
Medicare and other federal program patient referrals to any of the Company's
diagnostic imaging facilities. The Company also is prohibited from presenting
a claim for services rendered in connection with such a prohibited referral.
It would not be necessary for the Company to have knowledge that the referral
was unlawful in order for there to be a violation for which the penalty could
be denial of payment for the claim or a refund to the payer. Penalties of up
to $15,000 for each violation and exclusion from Medicare and other programs
could be assessed if a bill is presented and the entity knows or should have
known that it is the result of a prohibited referral.
Physicians with compensation arrangements with the Company, such as
its interpreting physicians, also are subject to the foregoing referral
prohibition, unless the arrangement fits within a Stark II exception. Stark II
permits personal arrangements between such physicians and the Company if
various criteria are met, including that the arrangement is set out in writing,
has a duration of at least one year and the compensation paid to the physicians
represents the fair market value of the professional services provided and does
not take into account the volume or value of any referrals or other business
generated between the parties. Stark II also specifically states that a
prohibited referral does not include a request by a radiologist for diagnostic
radiology services if such services are furnished by or under the supervision
of that radiologist.
To its knowledge the Company currently does not have any physicians
who are significant shareholders and, therefore, the Company's revenue growth
has been derived entirely from non-investor physician referrals. In the event
the Company has physician shareholders in the future federal and state law will
prohibit referrals by such investors to any of the Company's imaging centers.
As a provider of diagnostic services, the Company is required to
report the names and unique identification number of physicians who, or whose
immediate family members, have an investment interest in or compensation
arrangement with the Company. The Company's current shareholders are not
physicians and, therefore, do not provide referrals in potential violation of
the foregoing provisions. In the future, however, many of the Company's Common
Shares or Warrants may be held by physicians or their immediate family members
or in "street name", and therefore, not readily subject to discovery.
Management believes that monitoring of such ownership would be extremely
difficult. However, management is investigating methods of minimizing its
exposure to inadvertently accepting a prohibited referral. Management will
also assess and monitor its compensation arrangements with physicians.
Although the Company believes that it is in material compliance with
all applicable federal and state laws
15
<PAGE> 16
and regulations, there can be no assurance that such laws or regulations will
not be enacted, interpreted or applied in the future in such a way as to have a
material adverse impact on the Company, or that federal or state governments
will not impose additional restrictions upon all or a portion of the Company's
activities, which might adversely affect the Company's business.
EMPLOYEES
As of March 31, 1997, the Company had 113 employees (all full time),
including 3 executive officers, 68 administrative personnel, 2 sales and
marketing person and 40 technical personnel. The Company is not a party to any
collective bargaining agreement and considers its relationship with its
employees to be good.
INSURANCE
The Company carries workmen's compensation insurance, comprehensive
and general liability coverage, fire and allied perils coverage in amounts
deemed adequate by management. The Company is not engaged in the practice of
medicine and, therefore, does not carry medical malpractice insurance. See
"Risk Factors." There is no assurance that potential claims will not exceed the
coverage amounts, that the cost of coverage will not substantially increase or
require the Company to insure itself or that certain coverages will not be
reduced or become unavailable. The Company also requires that physicians
practicing at the imaging centers carry medical malpractice insurance to cover
their individual practices. The interpreting physicians are responsible for
the costs of this insurance.
ITEM 2 -- DESCRIPTION OF PROPERTY
The Company's executive office and its primary diagnostic facility are
located in Brandon, Florida and occupy approximately 11,325 square feet of
space. The Company entered into a lease with respect to such facilities on
September 1, 1994, expiring August 31, 1997, which is followed by a renewal
option of five years. The new lease consolidated prior leases pertaining to
the Brandon facility's then existing space and provided additional space to
accommodate the Company's Center for Women. Under both prior leases and its
existing lease, the Company paid an aggregate of approximately $126,000
(including common area maintenance and real estate taxes) in fiscal 1996 for
space at such facility. Pursuant to the lease terms, the annual
rental for the Brandon facility is subject to an annual escalation of up to
four percent based upon the Consumer Price Index. Additionally, the annual
rental is subject to a one-time 10% escalation upon the Company's exercise of
its renewal option.
The Company entered into a month to month lease for 1,500 square feet
of office space in Jacksonville to serve as the Company's northeast Florida
regional office. Annual rent approximates $18,000. The lease for this space
is with Ronald Baugh, the President and Chief Operating Officer of Orange Park.
The Company also has entered into a lease relating to its 6,390 square
foot SunPoint facility in Ruskin, Florida. The initial term of the Ruskin
lease is five years, beginning September 1, 1994, with one five year renewal
option. Base rental payments (excluding common area maintenance and real
estate taxes) under the lease will be approximately $23,000 in 1995 and $48,000
annually thereafter. Pursuant to the lease terms, the annual rental for the
Ruskin facility is subject to a four percent annual escalation after 1996.
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<PAGE> 17
Orange Park had based its mobile operations from a leased facility in
Middleburg, Florida from Ronald Baugh, the President and Chief Operating
Officer of Orange Park, on a month-to-month basis. In July of 1995, Orange
Park moved to a 5,100 square foot fixed site facility located in Orange Park,
Florida and owned by Sundance Partners, a Florida general partnership in which
all general partners were directors and/or shareholders of the Company. A
triple net lease was entered into with an initial term of ten years, beginning
April 1, 1995. Base rental payments under the lease are approximately $ 44,000
annually. Rent expense including common area maintenance for 1996
approximated $58,000. The facility was owned by a general partnership
(Sundance). The Company's majority stockholders owned a majority interest in
the Sundance. Effective December, 1995, The Company purchased a 100% interest
in the general partnership by issuing stock valued at $51,057 and assumed a
mortgage note for $295,279. The underlying assets in the partnership appraised
at over $600,000.
The Company entered into a triple net lease for its Riverside facility
(which opened in July of 1996) with Sundance Partners II, a Florida general
partnership in which the general partners are officers/directors and majority
shareholders of the Company. The facility is a newly constructed 7,100 square
foot stand alone medical center constructed to Company specifications. The
lease has an initial term of five years with a one time renewal option for five
more years. Base rental payments are $110,050 annually. The base rent shall
escalate up each year by $.25 per square foot. Rent expense for 1996
approximated $58,000.
The Company believes its present and anticipated leased facilities to
be in excellent condition and suitable for their intended operations.
ITEM 3 -- LEGAL PROCEEDINGS
In December, 1995 the physician group which contracted with Brandon
and SunPoint for radiology readings terminated the contract. On February 9,
1996 the physician group filed a suit entitled East Pasco Radiology Associates,
P.A. vs. Brandon Diagnostic Center, Ltd., and SunPoint Diagnostic Center, Inc.
in the Hillsborough County Florida Circuit Court against the Company alleging
the centers materially breached the contract by failing to pay physician fees
timely and incorrectly billing certain procedures. The physician group sought
payment for services rendered (approximately $178,000) and lost profits
(approximately $850,000). In February of 1997, the court denied the claim for
lost profits and entered an award in favor of the physician group relating to
services rendered. The Company adequately reserved for the claim for services
and satisfied the judgement in February of 1997. Subsequently, a motion by the
physicians for a rehearing was denied. The physicians filed a notice of appeal
for the lost profits claim in April, 1997. Also a motion for costs relating to
the law suit (approximately $10,000) was filed by the physicians group. The
company believes the costs to be substantially less than the amount claimed and
intends to contest the amount.
On March 10, 1995 legal action was instituted against A.T. Brod & Co.,
Inc. (a national stock brokerage firm) by a terminated employee of A. T. Brod &
Co., Inc ("A.T. Brod"). A. T. Brod was a major market maker for National
Diagnostic, Inc. stock. The Company was named in the suit entitled James I.
Blackey vs. A.T. Brod & Co., Inc., Arthur M. Stupay, Jugal Taneja, R.K. Khosla,
Bancapital Investment Corporation, and National Diagnostics, Inc. pending the
Supreme Court of the State of New York, County of Erie, Index Number
I-1995-2249. Mr. J. Taneja is Chairman, Chief Executive Officer and Director
of both A. T. Brod and the Company. The action alleges wrongful discharge,
breach of contract, deformation of character, conspiracy and tortious
interference with a contract arising out of the alleged wrongful termination of
the plaintiff by A.T. Brod and seeks compensatory and punitive damages of
$2,830,000. In April of 1997 the Company reached a settlement for $5,000
which has been fully paid by the Company.
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<PAGE> 18
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1996.
PART II
ITEM 5 -- MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since October 12, 1994, the Company's Common Shares have been traded
separately in the Nasdaq SmallCap Market under the symbol NATD. The following
table sets forth the high and low bid prices for Common Shares as reported by
Nasdaq for the periods indicated. These prices are not necessarily indicative
of prices at which actual buy and sell transactions could occur.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C> <C>
1994
Fourth Quarter (from October 12) $4-3/4 $3
1995
First Quarter $6-1/4 $1-7/8
Second Quarter $4 $1-1/2
Third Quarter $1-7/8 $1
Fourth Quarter $3-1/2 $1-11/16
1996
First Quarter $3-3/8 $2-5/16
Second Quarter $4-1/2 $2-1/2
Third Quarter $4 $2-1/2
Fourth Quarter $2-3/4 $1-11/16
1997
First Quarter $2-7/16 $1-1/4
</TABLE>
On April 10, 1997, the closing bid quote for the Common Shares was
$1.62 per share, and there were 42 holders of record of Common Shares. The
majority of over 300 individual shareholders held their stock in a "street
name".
The Company has not paid cash dividends on its Common Shares and does
not anticipate doing so in the foreseeable future. The Company intends to
retain earnings, if any, for future growth and expansion opportunities.
Payment of cash dividends in the future, as to which there can be no assurance,
will be dependent upon the Company's earnings, financial condition, capital
requirements and other factors determined to be relevant by the Board of
Directors.
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<PAGE> 19
ITEM 6 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
Company's audited consolidated financial statements included elsewhere herein.
Due to the Company's net loss for 1996 of $1,241,661, and operating losses
for 1996 and 1995 which resulted in an accumulated deficit of $2,048,165, at
December 31, 1996, our independent certified public accountants have qualified
their accountants' report dated March 20, 1997, on the Company's 1996 financial
statements as to a going concern uncertainty. The following commentary within
"Management Discussion and Analysis" addresses the Company's operations for
1996 and its plan to improve future results. These matters are also discussed
in Note 2k to the financial statements.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
Net revenues for fiscal 1996 were $8,877,000 as compared to $6,233,000
for fiscal 1995, representing an approximately 42% increase. This increase was
primarily attributable to new start up facilities and an increase in the volume
of procedures performed at pre-existing facilities. Orange Park mobile
operations started up in February 1995, opening a fixed site facility in
August; and in September a mobile MRI facility and a mobile cardiology unit
were placed in service. Riverside operations started up in July, 1996. The
start up facilities accounted for approximately $1,344,000 of the increase in
revenues. The Brandon facility increased its revenues $1,005,000 or
approximately 26% to $4,927,000 in 1996. SunPoint increased its revenues
$314,000 or approximately 30% to $1,276,000 in 1996.
The Company's net accounts receivable increased $630,000 to $2,131,000
from $1,501,000 at December 31, 1996 and 1995, respectively. Approximately 52%
of this increase is the direct result of the Company's start up operations
inclusive of the Orange Park Center opened in August, 1995. The cash position
of the Company decreased to $104,000 from $128,000 at December 31, 1996 and
1995, respectively.
The following table sets forth selected operating results as a
percentage of net revenues for 1996 as compared to 1995.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
----------- -----------
<S> <C> <C>
Net Revenue 100.0% 100.0%
Direct Operating Expenses 54.6 56.0
General and Administrative Expense 40.3 42.3
Depreciation and Amortization 13.6 14.2
Operating loss (8.6) (12.6)
Interest 6.3 5.3
Other Income 0.1 1.7
Income Taxes (benefit) 0 (2.9)
Net Loss (14.0) (13.3)
</TABLE>
Direct operating expenses increased approximately 38% to $ 4,850,000
for 1996 from $3,495,000 for 1995. This increase is a direct result of the
increased number of diagnostic procedures performed in 1996 compared to the
preceding year. Direct costs as a percentage of net revenue decreased
approximately 2% from the preceding year. This is attributable to various costs
that do not vary proportionately with net revenue. Rents increased approximately
2% as a percent of revenues primarily from the costs associated
19
<PAGE> 20
with the operating lease for the Orange Park mobile MRI which completed its
first full year of operation. In addition, radiology reading fees as a percent
of net revenue decreased approximately 3% due to the more favorable contracts
the Company entered into for 1996; wages decreased approximately 1% as a percent
of net revenue due to increased efficiencies.
General and administrative expenses increased approximately 35% to
$3,576,000 for 1996 as compared to $2,635,000 for 1995. This increase was
primarily attributable to the addition of personnel and the related payroll and
related benefit costs associated with such personnel. Such personnel costs
increased approximately $631,000 to $1,986,000 inclusive of executive
compensation. The personnel were added in response to the expansion of
facilities and increased volume of procedures performed. Executive compensation
increased from approximately $468,000 in 1995 to $555,000 in 1996 as a result
of the employment of two additional executives in 1995 receiving their first
full year of salary in 1996. General and administrative expenses also increased
because of current operating expenses for start-up operations relating to the
addition of Riverside (an increase of $137,000 exclusive of personnel related
costs).
Depreciation (depreciation expense approximating $1,085,000) and
amortization increased 36% to $1,210,000 in 1996 as compared to $890,000 during
1995, while decreasing as a percentage of net revenue. The dollar increase was
principally attributable to the acquisition of new equipment for the start-ups
and amortization (approximately $50,000) of previously capitalized start-up
costs which are amortized over 12 months commencing with the date of first
patient services.
Interest expense increased to $564,000 in 1996 from $334,000 in 1995
as a result of additional financing for equipment acquisitions and working
capital.
The increase in net revenues was offset by a greater increase in
expenses resulting in a net loss of $1,242,000 for 1996 compared to a net loss
of $835,000 in 1995. This is primarily attributable to the start up operations
which bear the costs of a fully operational diagnostic facility while building
its patient and referring physician base from day one. Orange Park in its first
full year of operation has a loss of $ 898,000. Riverside in its six months of
operation has a loss of $511,000. Revenues increased steadily; however, the
ramp up of revenues for the new starts did not meet the Company's expectations.
The Company has responded in the first quarter of 1997 by terminating certain
management and executive personnel and placing additional emphasis on marketing
for the new start ups. The Company estimates this will save approximately
$150,000 in executive compensation. Additionally, the Board has acted effective
of January 1, 1997 to eliminate C.E.O. and C.O.O. bonuses ( in the 1996 this
approximated $136,000) until the Company becomes profitable for two consecutive
quarters.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
Net revenues for fiscal 1995 were $6,232,515 as compared to $3,708,603
for fiscal 1994, representing a 68% increase. This increase was primarily
attributable to new start up facilities and an increase in the volume of
procedures performed at pre-existing facilities. SunPoint completed its first
full year of operation (two months operation in 1994); Orange Park mobile
operations started up in February 1995, opening a fixed site facility in
August; and in September a mobile MRI facility and a mobile cardiology unit
were placed in service. The 1995 start ups accounted for approximately 52% of
the increased in revenues. The Brandon facility increased its revenues 8% to
$3,922,000 in 1995.
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<PAGE> 21
The Company's net accounts receivable increased $886,145 to $1,500,841
from $614,696 at December 31, 1995 and 1994, respectively. Approximately 87% of
this increase is the direct result of the Company's start up operations
inclusive of the SunPoint Diagnostic Center, Inc. opened in November, 1994. The
cash position of the Company decreased to $128,094 from $1,497,510 at December
31, 1995 and 1994, respectively. Approximately 23% or $309,000 of this decrease
was a result of the Company's operational losses (for further discussion
regarding cash and liquidity see "Liquidity and Capital Resources").
The following table sets forth selected operating results as a
percentage of net revenues for 1995 as compared to 1994.
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994
----------- -----------
<S> <C> <C>
Net Revenue 100.0% 100.0%
Direct Operating Expenses 56.0 44.4
General and Administrative Expense 42.3 27.8
Depreciation and Amortization 14.2 15.2
Operating Income (loss) (12.6) 12.6
Interest 5.3 7.3
Other Income 1.7 0.3
Income Taxes (benefit) (2.9) 0.2
Net Income (Loss) (13.3) 5.4
</TABLE>
Direct operating expenses increased 112.3% to $3,494,691 for 1995 from
$1,646,175 for 1994, also increasing as a percentage of net revenue. This
increase is attributable to several factors: (1) an increase in certain costs
which do not vary proportionately with revenue changes (example: rents
increased approximately $147,000 to $189,915 and compensation for start ups and
expansion which increased approximately $493,000 to $898,317.) and (2)
increased fee expense to the Company for its interpreting physicians for
Brandon in accordance with the terms of their agreement (an increase of
approximately $234,000 to $786,713). The increase was also a result of the
additional cost of medical supplies resulting from the increase in the volume
of procedures performed.
General and administrative expenses increased 155.8% to $2,639,696 for
1995 as compared to $1,031,807 for 1994, also increasing as a percentage of net
revenue. This increase was primarily attributable to the addition of personnel
and the related payroll and related benefit costs associated with such
personnel. Such personnel costs increased approximately $826,000 to $1,178,440
inclusive of executive compensation. The personnel were added in response to
the expansion of facilities and increased volume of procedures performed.
Executive compensation increased from approximately $163,000 in 1994 to
$468,000 in 1995 as a result of changes in employment contracts (see Note 11 to
the financial statements) and the employment of two additional executives in
1995. General and administrative expenses also increased more rapidly than net
revenues because of start-up operations relating to the addition of Orange Park
and Cardiology (an increase of $477,000 exclusive of personnel related costs).
Additionally, the Company took a charge of $82,000 against earnings
representing costs associated with a secondary stock offering which the Board
determined not to be in the best interest of the Company due to market
conditions.
21
<PAGE> 22
Depreciation and Amortization increased 58.3% to $889,530 in 1995 as
compared to $561,767 during 1994, while decreasing as a percentage of net
revenue. The dollar increase was attributable to the acquisition of new
equipment for the start-ups and amortization of previously capitalized start-up
costs which are amortized over 12 months.
Interest expense increased to $334,499 in 1995 from $273,466 in 1994
as a result of additional financing for equipment acquisitions and working
capital.
The increase in net revenues was offset by greater increases in
expenses resulting in a net loss of $835,058 for 1995 compared to a net profit
of 119,535 in 1994. This is primarily attributable to the start up operations
which bear the costs of a fully operational diagnostic facility while building
its patient and referring physician base from day one. Revenues have steadily
increased through out the year while operating losses have been declining since
the second quarter high.
LIQUIDITY AND CAPITAL RESOURCES
Medical equipment, capital improvements, acquisitions and new center
development historically have been funded through third-party capital lease and
debt obligations and internally generated cash flow. The leases are generally
secured by the equipment, and sometimes other assets, of particular facilities.
Interest rates in connection with the leases and borrowing range from fixed
rates of up to 14.5% to a variable rate equal to the bank prime rate, plus 1 to
2%. The Company at December 31, 1996 was and currently is in default exclusive
of the receipt of a recent waiver of its capital lease obligations due to late
payments of approximately $497,000 as a result of its liquidity problems
discussed more fully below. Generally, while in default the lessor may
accelerate the lease obligation (at December 31, 1996 total long-term portion of
all leases approximated $3,454,000). The Company has received notification from
its major lessor indicating they will work with the Company if the Company will
adhere to a work out schedule where in all leases will be brought to a current
status by December 31, 1997. The agreement is predicated upon the Company making
a $200,000 payment toward arrearages by April 25, 1997. The Company has
currently paid the $200,000; a portion of which came out of proceeds from a
second mortgage note given on its Sundance property. The other remaining lessors
(approximately 17% of the total loans outstanding at December 31, 1996) have
been cooperating with the Company, generally allowing not more than 60 days past
due on lease payments. There is no assurance the Company will be successful in
achieving these goals.
Capital expenditures, including capital lease obligations, for the
years ended December 31, 1996 and 1995 totaled approximately $2,930,000 and
$2,610,000, respectively. The Company anticipates capital expenditures of
approximately $247,000 during 1997. The Company has already entered into a
$197,000 capital lease for an equipment upgrade the Company took receipt of in
the first quarter of 1997. In December the Company obtained bank financing for
a $150,000 new non-surgical mammography biopsy unit which will expand the
Company's Women Center in the Brandon Facility. The Company took delivery of
the unit in the 1st quarter of 1997.
The Company intends to curtail further external expansion (new
start-ups or acquisitions) until the Company's current new start-ups achieve
acceptable levels of operation, and/or the Company achieves additional capital
infusion. In 1996 the Company retained the services of an investment banking
firm to explore strategic alternatives designed to maximize stockholder value.
The Company is currently considering different alternatives which includes but
are not limited to capital infusion and/or merger or sale of the Company.
22
<PAGE> 23
In September 1996, the Company refinanced with South Hillsborough
Community Bank a $216,000 equipment term loan (at prime rate plus 1%)
previously financed with another financial institution. The Company also
entered into a $2,000,000 line of credit with DVI Business Credit Corporation
("DVI", a lender specializing in medical receivables). The lender has a first
security interest on all accounts receivable. Interest is at prime plus 1.6%.
Initial proceeds from the line went to pay off $517,000 of existing lines of
credit with other financial institutions leaving approximately $380,000 to fund
current operations. At year end the line availability and loan balance
approximated $131,000 and $1,125,000, respectively. At March 31, 1997 the line
availability and loan balance approximated $15,000 and $1,059,000,
respectively.
In February of 1997 the Company settled its litigation with its prior
radiologists (see Item 3-Legal Proceedings). The settlement plus legal fees
approximated $205,000. This amount was borrowed from DVI in 1997 at an interest
rate of "base" plus 3% (at March 31, 1997 11.5%). The loan calls for 28 weekly
payments of $7,500; the balance to be paid in full by August 29, 1997. The loan
is secured by accounts receivable and is being paid out of current collections.
The Company is current with its payments. In March of 1997, the Company
borrowed $125,000 from a related party corporation (majority owned by Messrs.,
Taneja and Alliston). The proceeds were used to pay property taxes. The loan is
due April 29, 1997 and is expected to be paid out of receipts from overdue
providers payments.
Due to the rapid expansion of facilities and increases in additional
personnel and related costs the Company has continued to experience difficulty
in meeting timely its current obligations to its lessor (discussed above) and
trade creditors. As of year end and as of March 31, 1997, the Company has past
due payables in the amount of $705,000 and $959,000, respectively. Most of the
vendors have accepted late payments. However, certain vendors will ship only on
a cash on delivery basis. The Company has been able to operate to date with no
lost revenues; however, how long it can continue in this manner cannot be
determined. The Company has identified cost cutting measures which will
approximate an annual savings of $286,000. These cost cutting measures were
instituted in the first quarter of 1997.
In 1996 the Company reduced its net cash by $24,000. Operations
contributed $464,000 of the total cash increases. Purchases of equipment
approximating $794,000 for expansion and new start-ups contributed totally to
the cash reduction. Financing contributed $306,000. Equipment acquired through
capital leasing approximated $2,136,000.
The Company is currently negotiating a contract that would accelerate
the ramp up of its newest start-up facility. If the Company is successful in
obtaining the contract it could result in an estimated increase in net revenues
of approximately $500,000 to $800,000. As a result of its cost cutting
measures, increasing revenues coupled with an accelerated ramp up of its newest
start-up, satisfaction of its property and equipment needs for current
operations, and if the Company's vendors and lessors continue to allow a grace
period of sixty to ninety days, the Company believes that its presently
anticipated short-term needs for operation, capital repayments and capital
expenditures for its current operations can be satisfied through internally
generated funds and existing credit facilities with DVI. The Company feels that
its ability in the short-term to improve its working capital is positive;
however, marginal. Therefore, the Company is currently discussing capital
infusion alternatives which may consist of selling additional stock. Should the
above possibilities not materialize and to assure continued operations the
Company is prepared to sell off certain assets that have not yet matured
sufficiently to allow a positive return. There is no assurance that these
short-term needs can be met.
The Company's long term growth strategies will require additional
funds. In the event that the Company proceeds with the establishment of
additional facilities, or encounters favorable acquisition opportunities in the
23
<PAGE> 24
near future, the Company may incur, from time to time, additional indebtedness
and attempt to issue equity or debt securities in public or private
transactions. There is no assurance that the Company will be successful in
securing additional financing or capital through equity or debt securities.
The Company's determination whether to proceed with new facilities in
Florida or elsewhere in the southeastern United States will depend on
management's consideration of such factors as (i) the demographics of a
particular area, (ii) competition from other diagnostic service providers in
such area, (iii) physician referral patterns, (iv) the mix of managed care
providers, Medicare/Medicaid patients and patients insured by commercial
insurance carriers, (v) estimates of potential sales in relation to the capital
investment required to establish a facility, (vi) the availability of
commercial lease property for a start-up facility, and (vii) financial analysis
of potential acquisition targets.
The Company has over the last few years experienced increased
pressures on reimbursement from third parties. The Company expects such
pressures to cause reduced pricing in the aggregate for diagnostic procedures
in the future. Due primarily from the Company's revenue mix the effects of
reduced pricing have been minimized. Approximately 49% of the company's revenue
has been derived from private insurance carriers, individuals, worker's
compensation and other sources that have not experienced reimbursement
pressures characteristic of managed care providers, Medicare and Medicaid.
Additionally, the Company has entered into certain capitation contracts with
minimum flooring reimbursements which the Company believes will ultimately
bring new found business to the Centers. The capitation contracts are fixed fee
arrangements made with HMO's wherein the Company receives a fixed fee per HMO
participant regardless of whether the participant receives patient services or
not. A minimum floor reimbursement (example: approximately 70% of the Medicare
allowable rate) is agreed to which serves to minimize the risk to the Company
should an excess number of participants require patient services. The advantage
to the Company results when the aggregated fixed fee per HMO participant
exceeds the fees earned from actual HMO participant patient services rendered.
Additionally, the Company may obtain regular fee for service revenues from
referred HMO participants for services not covered under the capitation
contract.
SEASONALITY
The Company usually experiences approximately an 8 to 12% decrease in
revenues during the third quarter of the fiscal year due to reduced activity
during the summer months. This trend was not evident in 1996 due to the upward
trend for services experienced in the new start ups.
EFFECTS OF INFLATION
The impact of inflation and changing prices on the Company has been
primarily limited to salary, medical and film supplies and rent increases and
has not been material to the Company's operations to date. Management is aware
of increased inflationary expectations and believes that the Company may not be
able to raise the prices for its diagnostic imaging procedures in an amount
sufficient to offset inflation. The Company, however, does believe that this can
be offset by increased volume.
24
<PAGE> 25
ITEM 7 -- FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS...............................................................26
CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 and 1995........................................................................27
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1996 and 1995..................................................................29
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 and 1995..................................................................30
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996 and 1995..................................................................32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................................................................33
</TABLE>
25
<PAGE> 26
Report of Independent Certified Public Accountants
Board of Directors
National Diagnostics, Inc.
We have audited the accompanying consolidated balance sheets of National
Diagnostics, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National
Diagnostics, Inc. and Subsidiaries as of December 31, 1996 and 1995 and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared, assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $1,241,661 during the year ended December 31,
1996, and, as of that date, the Company has a retained earnings (accumulated
deficit) of $(2,048,165) and a working capital (deficiency) of $(2,159,581). The
working capital deficiency has required the Company to extend the payment of
certain of its obligations, including those associated with capital leases which
contain acceleration provisions, some of which have been conditionally waived on
either a formal or informal basis. The Company's ability to fund its operations
and meet its obligations in 1997 will be dependent upon the Company improving
its overall level of profitability and/or obtaining additional financing or an
infusion of capital. These factors, among others, addressed in Note 2k raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 2k. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
GRANT THORNTON LLP
Tampa, Florida
April 9, 1997 (except for
paragraph three of Note 6, as
to which the date is April 25, 1997)
26
<PAGE> 27
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 104,335 $ 128,094
Accounts receivable, net of allowances of $664,402 and
$342,900 in 1996 and 1995, respectively 2,131,284 1,500,841
Prepaid expenses and other current assets 220,864 301,761
------------ ------------
Total current assets 2,456,483 1,930,696
------------ ------------
Property and equipment 9,481,198 6,732,150
Less: accumulated depreciation and
amortization (3,264,655) (2,197,420)
------------ ------------
Net property and equipment 6,216,543 4,534,730
------------ ------------
Other assets:
Excess of purchase price over net assets acquired,
net of accumulated amortization of $61,274 and
$36,547 in 1996 and 1995, respectively 428,187 452,914
Deposits 47,444 53,115
Other 51,020 57,805
------------ ------------
Total other assets 526,651 563,834
------------ ------------
$ 9,199,677 $ 7,029,260
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE> 28
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current liabilities:
Lines of credit $ 993,818 $ 409,500
Notes due to related parties 99,882 49,243
Note payable, other 4,294 8,000
Current installments of long-term debt 105,410 100,487
Current installments of obligations under
capital leases 1,103,952 648,909
Accounts payable 1,080,236 604,479
Accrued radiologist fees 489,785 225,815
Accrued expenses, other 738,687 411,262
Due to related party - 57,231
------------ ------------
Total current liabilities 4,616,064 2,514,926
Long-term liabilities:
Long-term debt, excluding current installments 619,227 541,124
Obligations under capital leases,
excluding current installments 3,454,456 2,489,444
Deferred lease payments 236,912 210,335
------------ ------------
Total liabilities 8,926,659 5,755,829
------------ ------------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, no par value, 1,000,000
shares authorized, no shares issued
and outstanding - -
Common stock, no par value, 9,000,000
shares authorized, 2,628,577 and 2,539,629 shares
issued and outstanding in 1996 and 1995 686 668
Additional paid-in capital 2,320,497 2,079,267
Retained earnings, (accumulated deficit) (2,048,165) (806,504)
------------ ------------
Net stockholders' equity 273,018 1,273,431
------------ ------------
$ 9,199,677 $ 7,029,260
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE> 29
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
--------------- --------------
<S> <C> <C>
Net revenue $ 8,876,652 $ 6,232,515
--------------- --------------
Operating expenses:
Direct operating expenses 4,850,088 3,494,691
General and administrative 3,576,087 2,634,973
Depreciation and amortization 1,210,245 889,530
--------------- --------------
Total operating expenses 9,636,420 7,019,194
--------------- --------------
Operating loss (759,768) (786,679)
Interest expense 563,951 334,499
Other income 82,058 106,120
--------------- --------------
Loss before income taxes (1,241,661) (1,015,058)
Income tax (benefit) - (180,000)
--------------- --------------
Net loss $ (1,241,661) $ (835,058)
=============== ==============
Loss per common share $ (.48) $ (.44)
=============== ==============
Weighted average number of common
shares outstanding 2,579,380 1,887,672
=============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
29
<PAGE> 30
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,241,661) $ (835,058)
Adjustments to reconcile net loss to net cash provided (used) by operating
activities:
Depreciation and amortization 1,210,245 889,530
Increase in accounts receivable allowances 321,502 244,300
Deferred income taxes - (169,000)
Warrants issued for services 8,000 -
Gain (loss) on disposition of equipment 23,551 (37,712)
Increase in accounts receivable (951,945) (1,130,445)
Increase (decrease) in prepaid expenses and
other assets (9,026) (277,539)
Increase in accounts payable and
accrued expenses 1,067,152 740,499
Increase due to related party 10,067 -
Decrease in income taxes payable - (11,000)
Increase in deferred lease payments 26,577 210,335
--------------- ---------------
Net cash provided (used) by operating activities 464,462 (376,090)
--------------- ---------------
Cash flows used in investing activities:
Purchases of property and equipment (793,870) (1,204,763)
Payment for purchase of Orange Park - (62,000)
--------------- ---------------
Net cash used in investing activities (793,870) (1,266,763)
--------------- ---------------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock, net 165,950 84,800
Proceeds from borrowings on line of credit 584,318 409,500
Proceeds from note payable 4,294 8,000
Repayment of note payable (8,000) -
Proceeds from borrowings on long-term debt 164,358 415,464
Repayment of long-term borrowings (81,332) (84,518)
Proceeds of borrowing from related parties 67,306 106,474
Repayment of related parties borrowings (16,667) -
Repayment of other notes payable - (102,187)
Principal payments under capital lease obligations (580,249) (524,515)
Decrease (increase) in deposits 5,671 (39,581)
--------------- ---------------
Net cash provided by financing activities 305,649 273,437
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
(continued)
30
<PAGE> 31
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
Net increase (decrease) in cash (23,759) (1,369,416)
Cash at beginning of period 128,094 1,497,510
------------- -------------
Cash at end of period $ 104,335 $ 128,094
============= =============
Supplemental disclosure of cash flow information:
Interest paid $ 453,712 $ 330,000
============= =============
Income tax paid $ - $ 15,723
============= =============
Non-cash investing financing activities:
Capital lease obligations incurred $ 2,136,163 $ 1,066,889
============= =============
Capital lease obligations canceled and return of equipment
(net book value of equipment approximating $120,000) $ 135,859 $ -
============= =============
Stock issued as satisfaction of related party debt (See Note 12) $ 67,292 $ -
============= =============
Note received on disposal of equipment $ 9,770 $ -
============= =============
</TABLE>
In February 1995, the Company acquired certain business assets (principally
mobile equipment) totaling $203,000 related to its Orange Park facility for
consideration of $62,000 cash, issuance of a note payable of $45,000, the
obligation to issue common stock in the amount of $51,000 and the assumption of
liabilities of $45,000 (see note 12).
In December of 1995, the Company acquired a partnership interest representing
real estate assets of $346,000 by assuming long-term debt of $295,000 and the
issuance of 116,711 shares of common stock amounting to $51,000 (see note 12).
In September of 1996 the Company refinanced its bank lines of credit
approximating $517,000 with a new line from DVI Business Credit (see note 4).
Additionally, the Company refinanced a $208,000 equipment loan and a $50,000
related party note.
The accompanying notes are an integral part of the consolidated financial
statements.
31
<PAGE> 32
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN (ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT) EQUITY
------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Balances at December 31, 1994 $ 500 $ 1,943,579 $ 28,554 $1,972,633
Exchange of 642,918 shares of
National Diagnostics, Inc.
common stock at $1.5625 per
share for 1,607,295 warrants
at $.625 per warrant 129 (129) - -
Exercise of director stock options
(80,000 shares) 16 84,784 - 84,800
Issuance of common stock
(116,711 shares) 23 51,033 - 51,056
Net Loss - - (835,058) (835,058)
------------- ------------ ------------ ----------
Balances at December 31, 1995 $ 668 $ 2,079,267 $ (806,504) $1,273,431
------------- ------------ ------------ ----------
Issuance of common stock
(33,448 shares) 7 67,291 - 67,298
Issuance of warrants
(100,000 warrants) - 8,000 - 8,000
Exercise of warrants
(55,500 shares) 11 165,939 - 165,950
Net Loss - - (1,241,661) (1,241,661)
------------- ------------ ------------ ----------
Balance at December 31, 1996 $ 686 $ 2,320,497 $ (2,048,165) $ 273,018
============= ============ ============ ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE> 33
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1) ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of National
Diagnostics, Inc. (Company), Alpha Associates, Inc. (Associates), Alpha
Acquisitions Corp. (Acquisitions), SunPoint Diagnostic Center, Inc
(SunPoint), National Diagnostics/Orange Park, Inc (Orange Park), and
National Diagnostics/Riverside, Inc. (Riverside). Associates and
Acquisitions hold 100% of the partnership interests in Brandon
Diagnostic Center, Ltd. (Brandon). The Company and Orange Park hold
100% of the partnership interests in Sundance Partners (a real estate
holding partnership.) National Diagnostics, Inc., is a holding company
which was formed in June 1994.
On September 1, 1995, the Company formed a wholly-owned subsidiary
National Diagnostics/Cardiology, Inc. (Cardiology) which was merged
into Orange Park in 1996.
The Company provides medical imaging services to patients at its
centers or mobile facilities in Brandon (Brandon), Ruskin (SunPoint),
and greater Jacksonville area (Orange Park and Riverside), Florida.
In preparing financial statements in conformity with generally
accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. As an example of such an
estimate is the Company's determination of its contractual adjustments
and doubtful accounts provision. Actual results could differ from
those estimates.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries and their affiliates. All
significant intercompany balances and transactions have been
eliminated.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) PROPERTY EQUIPMENT
Property and equipment is stated at cost. Depreciation
expense is charged to operations over the estimated useful
service period of the assets using the straight-line method.
Property and equipment held under capital leases are
generally amortized straight-line over the shorter of the
lease term or estimated useful life of the asset. The Company
uses accelerated depreciation for tax purposes.
B) INCOME TAXES
Income taxes are provided based upon provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for
Income Taxes". Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
33
<PAGE> 34
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
C) PRE-OPENING COSTS
Pre-opening costs consisting of outside consulting, other
directly related professional fees, equipment testing and
calibration and office set up which are incurred prior to
opening are deferred and amortized over 12 months commencing
with a Center opening. Such costs which are included net of
amortization in other current assets totaled approximately
$59,089 and $196,518 at December 31, 1996 and 1995,
respectively. Amortization expense for pre-opening costs for
1996 and 1995 was $73,665 and $96,575 respectively.
D) EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
Excess of purchase price over net assets acquired are
amortized over 20 years. Management reviews the performance
of the related assets on a quarterly basis to determine if
impairment has taken place. No impairment costs have been
realized in the current years. Amortization expense for the
excess of purchase price over net assets acquired for 1996
and 1995 was $24,476 and $24,187 respectively.
E) CASH AND CASH EQUIVALENTS
For financial statement purposes cash equivalents include
short-term investments with an original maturity of ninety
days or less. At December 31, 1996 and 1995, respectively,
the Company had investments in money market accounts
of $-0- and $4,384.
F) ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF
Effective January 1, 1996 the Company adopted statement of
Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of (SFAS No. 121). SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles held
and used by an entity along with goodwill should be reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected future cash flows
(non-discounted and without interest) is less than the
carrying amount of the asset, an impairment loss is
recognized. Measurement of that loss would be based on the
fair value of the asset. SFAS No. 121 also generally requires
long-lived assets and certain identifiable intangibles to be
disposed of to be reported at the lower of the carrying
amount or the fair value less cost to sell. The company
adoption of SFAS No. 121 had no impact on the Company's
financial statements.
There was no impairment loss recorded in 1996.
G) REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
Revenues are recognized on the date services and related
products are provided to patients and are recorded at amounts
estimated to be received under reimbursement arrangements
with third party payors, including private insurers, prepaid
health plans, Medicare and Medicaid. Net revenue represents
gross revenue less contractual adjustments and provision for
bad debts (bad debts are not material to the Company's
financial statements) (see note 10). The Company's
management at least quarterly determines the adequacy of the
accounts receivable valuation allowances by, among other
procedures, reviewing historical experience for changes in
factors affecting billing and collections (e.g. third party
reimbursement arrangements). For all years presented,
approximately 18% to 23% of the Company's
34
<PAGE> 35
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
revenues are reimbursed under arrangements with
Medicare/Medicaid. No other third party payor group
represents 10% or more of the Company's revenues. Therefore,
concentration of credit risk with respect to the remaining
accounts receivable is limited due to the large number of
payors representing the patient base.
The Brandon facility contributed approximately 55% and 63% of
total revenues for 1996 and 1995, respectively.
H) ACCOUNTING FOR STOCK BASED COMPENSATION
Effective January 1, 1996, the Company adopted SFAS No.
123, Accounting for stock Based Compensation. For employee
stock awards, as allowed by SFAS No. 123, the Company has
elected to continue using the accounting method promulgated by
the Accounting Principals Opinion No. 25. Accounting for Stock
Issued to Employees to measure compensation. As a result,
SFAS No. 123 proforma disclosures are required in these
financial statements. The adoption of SFAS No. 123 accounting
and reporting provisions had no effect on the Company's
financial statement (see Note 13.
I) LOSS PER COMMON SHARE
Loss per share for the years ended December 31, 1996 and
1995, is computed using the weighted average number of common
shares. Generally, common stock equivalents such as
outstanding incentive stock options and warrants are included
in the calculation if they have a dilutive effect on earnings
per share. The Company's options and warrants were not
included in the calculation because they had an antidilutive
effect.
J) FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1996 and 1995, the carrying amount of cash,
accounts receivable, accounts payable and accrued expenses
approximate fair value because of the short-term maturities
of these assets.
The carrying amounts of current obligations approximate the
fair market value due to either the short-term maturity of
the obligation or the interest rate changes with market
interest rates. Carrying amounts of long-term obligations
approximate the fair market value due to either the fact that
the obligation was recently financed or refinanced, or in the
case of other obligations, the interest rates approximate
that which the Company is able to obtain currently.
K) OPERATIONAL MATTERS AND LIQUIDITY
The Company has a net loss for 1996 of $1,241,661 and at
December 31, 1996 has a retained earnings accumulated deficit
of $2,048,165 and a working capital deficiency of $2,159,581,
which has resulted in late lease payments which have payment
acceleration provisions. In view of these matters,
recoverability of a major portion of the recorded asset
amounts shown in the accompanying balance sheet is dependent
upon continued operation of the Company, which in turn is
dependent upon either the Company's ability to succeed in its
future operations or its ability to obtain additional funding.
The financial statements do not include any adjustments
relating to the recoverability and classification of recorded
asset amounts or amounts and classification of liabilities
that might be necessary should the
35
<PAGE> 36
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company be unable to continue in existence. The following
commentary addresses the Company's operations for 1996 and
its plan to improve future results.
The Company attributes the loss in 1996 primarily to the
effect the losses from its new start up facilities had on the
Company: Orange Park completed its first full year of
operation with a loss of $898,000 and Riverside (opened July
of 1996) had a loss of $511,000. Due to the expansion and
growth the Company's working capital has decreased to the
extent that the Company has fallen behind in meeting its
lease and vendor obligations. Most of the vendors have been
cooperative by allowing extended terms. The Company has
received from its major lessor a waiver of default based on
the Company adhering to a work out schedule which will bring
the leases to a current status by December 31, 1997. Other
lessors have also been cooperative with extended terms (see
note 6). The Company believes as the increase in revenues for
start ups continues and certain cost cutting measures
(estimated unaudited annual savings approximately $286,000
inclusive of Officer's bonuses) take effect that the Company
will return to a profitable position though no absolute
assurances can be given. The Company has curtailed its plan
for further external expansion unless additional capital
funding is obtained.
3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated
December 31, December 31, service
1996 1995 life (years)
------------- ------------ -----------
<S> <C> <C> <C>
Land $ 85,000 $ 85,000 -
Buildings 253,041 253,041 39
Medical Equipment 7,414,946 5,200,475 7
Office furniture and equipment 665,295 477,739 7
Leasehold improvements 837,699 483,353 3-5
Vehicles 225,217 232,542 5-7
------------- ------------
$ 9,481,198 $ 6,732,150
------------- ------------
</TABLE>
4) LINES OF CREDIT
In 1996 the Company refinanced its bank lines of credit with a
lender that specializes in medical receivable financing. The lender
has a first security interest on all accounts receivable. The
borrowing base on the line fluctuates proportionately with accounts
receivable balance and is adjusted on a weekly basis The line has an
interest rate of prime plus 1.6% (at December 31, 1996, 9.85%) paid
monthly, the line matures September, 1998.
<TABLE>
<CAPTION>
1996
--------------
<S> <C>
Line of credit limit $ 2,000,000
Qualifying borrowing base 1,124,967
Outstanding loan balance at December 31, 1996 993,818
</TABLE>
36
<PAGE> 37
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Installment loans payable which consist of a number of separate
installment loan contracts secured by equipment and vehicles. The
loans require monthly installments of principal and interest over
terms that vary from two to five years. At December 31, 1996, the
loans bear interest at rates ranging from 9.0% to 12.25%. 432,681 346,334
Mortgage note payable in monthly installments of $2,445.88 including
interest at 8.75%; maturing April, 2020; secured by
mortgaged real estate property. 291,956 295,277
------------ ------------
Total long-term debt 724,637 641,611
Less current installments of long-term debt 105,410 100,487
------------ ------------
Long-term debt, excluding current installments $ 619,227 $ 541,124
============ ============
</TABLE>
The aggregate principal payments of long-term debt required annually
are:
<TABLE>
<S> <C> <C>
Year ending December 31: 1997 $ 105,410
1998 118,590
1999 107,030
2000 81,213
2001 44,555
Thereafter 267,839
-----------
$ 724,637
===========
</TABLE>
37
<PAGE> 38
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6) LEASES
The Company has entered into capital leases for medical equipment
which expire in 2001. The gross amount of equipment and related
accumulated depreciation recorded under capital leases are as
follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Medical equipment $ 7,012,716 $ 5,012,412
Less accumulated depreciation 2,472,716 2,045,692
------------ ------------
$ 4,540,000 $ 2,966,720
============ ============
</TABLE>
The present value of future minimum capital lease payments based on
interest rates ranging from 9% to 14.5% is as follows:
<TABLE>
<S> <C> <C>
Year ending December 31: 1997 $1,103,952
1998 1,214,745
1999 866,279
2000 632,207
2001 546,180
Thereafter 195,045
----------
Present value of minimum capital lease payments 4,558,408
Less current installments of obligations under capital leases 1,103,952
----------
Obligations under capital leases, excluding
current installments $3,454,456
==========
</TABLE>
The Company was at December 31, 1996 and currently (April, 1997) is
in default exclusive of the receipt of a recent waiver of its capital
lease obligations due to late payments of approximately $497,000.
Generally, while in default the lessor may accelerate the lease
obligation. The Company received notification (a conditional waiver)
from its major lessor indicating they will work with the Company if
the Company will adhere to a work out schedule where in all leases
will be brought to a current status by December 31, 1997. The
agreement is predicated upon the Company making a $200,000 payment
toward the arrearages by April 25, 1997. The Company has currently
paid the $200,000, a portion of which came out of proceeds from a
second mortgage note given on its Sundance property. The other
remaining lessors (approximately 17% of the total leases obligations
outstanding at December 31, 1996) have also been cooperating with the
Company; generally allowing not more than 60 days past due on lease
payments. The long-term portion of the these lease approximates
$3,454,000. because of the existing waiver and the present intent of
all parties, classification of the long-term capital lease
obligations to current has not been adjusted in the Company's
financial statements.
38
<PAGE> 39
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is obligated under noncancellable operating leases that
expire through 2002.
Future minimum lease payments under these leases are as follows:
<TABLE>
<S> <C> <C>
Year ending December 31: 1997 949,508
1998 804,799
1999 669,377
2000 608,423
2001 610,904
Thereafter 79,100
-------------
$ 3,722,111
=============
</TABLE>
Rental expense related to these non-cancelable leases was
approximately $1,066,000 and $396,000 for the years ended December
31, 1996 and 1995, respectively.
7) NOTES PAYABLE TO RELATED PARTIES
Note payable to related parties are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
-------------- ---------------
<S> <C> <C>
Note payable with imputed interest at 10%,
due January 31, 1996 $ - $ 49,243
Installment note payable with interest at 10%
payable in monthly payments of $4,167 plus interest
due August 15, 1997 $ 33,333 $ -
Notes payable with interest at 8% payable
on demand $ 66,549 $ -
-------------- ---------------
$ 99,882 $ 49,243
============== ===============
</TABLE>
Interest expense to related parties totaled $3,469 and $4,021 for
the years ended December 31, 1996 and 1995, respectively.
8) NOTES PAYABLE, OTHER
Other notes payable are summarized as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
--------------- --------------
<S> <C> <C>
Installment note payable with interest at 10.25%
due December 1997; unsecured. $ 4,294 $ -
Note payable with interest at 9.5%, due
April, 1996; unsecured - 8,000
--------------- --------------
Total other notes payable $ 4,294 $ 8,000
=============== ==============
</TABLE>
39
<PAGE> 40
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9) INCOME TAXES
The provision for income tax expense (benefit) at December 31,
consists of the following:
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Current $ - $ (11,000)
Deferred - (169,000)
--------------- --------------
$ - $ (180,000)
=============== ==============
</TABLE>
The income tax provision for 1996 and 1995 reconciled to the tax
computed at the statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Income taxes at statutory rate $ (422,100) $ (345,100)
State income taxes (48,000) (50,800)
Current year net operating loss not utilized 453,700 188,600
Non deductible expenses 16,400 27,300
------------ -------------
$ - $ (180,000)
============ =============
</TABLE>
The deferred tax asset and liability consist of the following at
December 31:
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Assets
Net operating loss carry forward $ 477,400 $ 158,000
Allowance for doubtful accounts 259,100 133,700
Deferred rents 87,800 75,800
Nondeductible accrued compensation 47,300 18,600
Pre-opening costs 44,800 29,900
Acquisition basis difference 121,500 122,300
------------ -------------
1,037,900 538,300
Less: valuation allowance (763,800) (310,900)
------------ -------------
274,100 227,400
------------ -------------
Liabilities
Fixed assets 273,200 227,000
Goodwill 900 400
------------ -------------
274,100 227,400
Net deferred taxes $ - $ -
============ =============
</TABLE>
40
<PAGE> 41
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management, using SFAS 109 criteria and placing greater weight on
the 1995/1996 taxable losses along with expectations for 1997,
concluded that the above valuation allowance at December 31, 1996,
was reasonable.
At December 31, 1996 approximately $1,200,000 in net operating carry
forwards remain which will expire if not utilized by 2011.
10) CONCENTRATION OF ACCOUNTS RECEIVABLE
The Company's accounts receivable are due from the following:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Commercial insurance carriers $ 1,077,500 $ 530,000
Managed care providers 753,100 382,400
Private patients 431,300 528,400
Worker's compensation 140,700 100,700
Medicare/Medicaid 393,086 302,241
------------- ------------
2,795,686 1,843,741
Less allowances:
Contractual adjustments 625,402 331,900
Doubtful accounts 39,000 11,000
------------- ------------
$ 2,131,284 $ 1,500,841
============= =============
</TABLE>
11) COMMITMENTS AND CONTINGENCIES
A) GUARANTEES
Certain equipment loans of the Company are fully guaranteed by an
officer/stockholder.
B) EMPLOYMENT CONTRACTS
The President and Chief Executive Officer operate under three year
employment contracts that became effective July 1, 1995. The
President and Chief Executive Officer receive salaries of $150,000
and $75,000, respectively, plus certain benefits. Under the
contracts each executive is to receive a 5% bonus of the annual net
income of the Company in excess of the prior fiscal year's income.
Additionally, a bonus equal to 2.5% of net revenue in excess of
the prior year's net revenue is to be paid to each executive. In 1997
the bonus arrangement was eliminated until the Company experiences
two consecutive profitable quarters.
Total compensation earned by the Chief Executive Officer and
President under the current and previously existing contracts for
the years ended December 31, 1996 and 1995 was approximately
$401,741 and $414,764 respectively.
41
<PAGE> 42
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company entered into an employment agreement with the President
of Orange Park for a three year period commencing February 1, 1995.
The executive is to receive as compensation an annual salary of
$100,000 (adjusted from $85,000 in July) plus certain benefits. In
addition, the executive will earn a 10% bonus based on the increase
in adjusted profits of the Orange Park center. No bonus was awarded
in 1996.
In November, 1995 the Company entered into a three year employment
agreement with the Vice President of Development. The executive is
to receive a salary of $85,000 plus certain benefits. This executive
was terminated effective February 1997.
C) PROFESSIONAL SERVICES AGREEMENT
The Company enters into agreements with physician groups to
provide radiological services. During 1995 the Company paid the
physician group operating in Brandon 15% of the first $200,000 net
monthly receipts from reading fees and 25% of net receipts from
reading fees over $200,000 and at SunPoint 15% of the first $100,000
of net receipts and 20% of net receipts over $100,000. These
contracts were terminated in December 1995 and the Company entered
into new contracts wherein physicians' reading fees for both Brandon
and SunPoint are paid at the rate of 14% of net receipts.
The Company paid the physician group operating in Orange Park 17% of
net receipts from reading fees. This contract was terminated
effective December 31, 1996 and subsequently negotiated a rate of
14%. At its Riverside facility the physician group is paid at the
rate of 15% of the first $200,000 of net monthly receipts and 20%
thereafter.
The Company entered into new radiological service contracts that
take effect in the first half of 1997 which call for reading fees at
the rate of 14% for its Brandon, SunPoint and Orange Park
facilities. The contracts call for a "contract termination without
cause" penalty of approximately $123,000 and $62,000 in the first
and second year, respectively.
Physician service expense under the current and previously existing
contracts for the years ended December 31, 1996 and 1995 was
approximately $1,228,000 and $1,013,000, respectively.
(D) LEGAL ACTION
In December of 1995, the physician group terminated its contract for
reading services with the Brandon and SunPoint centers and in
February of 1996, filed suit against the centers alleging the
centers materially breached the contract by failing to pay physician
fees timely and incorrectly billed certain procedures. The physician
group sought payment for services rendered (approximately $178,000)
and lost profits (approximately $850,000). In February of 1997, the
court denied the claim for lost profits and entered an award in
favor of the physician group relating to services rendered. The
Company substantially reserved for the claim for services and
satisfied the judgement in February of 1997 by obtaining financing
for approximately $205,000 from its accounts receivable lender
(balance due by August, 1997). Subsequently, a motion by the
physicians for a rehearing was denied. The physicians filed a notice
of appeal for the lost profits claim in April, 1997. Also a motion
for costs relating to the lawsuit (approximating $10,000) was filed
by the physician group. The Company believes the costs to be
substantially less than the amount claimed and intends to contest
the amount.
On March 10, 1995 legal action was instituted against A.T. Brod
& Co., Inc. (a national stock brokerage firm) by a terminated
employee of A.T. Brod & Co., Inc. ("A.T. Brod"). A.T. Brod was a
major market maker for National Diagnostics, Inc. stock. The Company
was named in the suit entitled James I. Blackey vs. A.T. Brod &
42
<PAGE> 43
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Co., Inc., Arthur Stupay, Jugal Taneja, R.K. Khosla, Bancapital
Investment Corporation, and National Diagnostics, Inc. pending the
Supreme Court of the State of New York, County of Erie, Index Number
I-1995- 2249. Mr. J. Taneja is Chairman, Chief Executive Officer and
Director of both A.T. Brod and the Company. The action alleged
wrongful discharge, breach of contract, deformation of character,
conspiracy and tortious interference with a contract arising out of
the alleged wrongful termination of the plaintiff by A.T. Brod and
sought compensatory and punitive damages of $2,830,000. In April of
1997 the Company reached a settlement for $5,000 which has been
paid by the Company.
12) BUSINESS COMBINATIONS
In February 1995, the Company acquired certain business assets
(principally mobile equipment) totaling $203,000 related to its
Orange Park facility for consideration of $62,000 cash, issuance of a
note payable of $45,000, the obligation to issue common stock in the
amount of $51,000 and the assumption of liabilities of $45,000.
Additionally, in 1996 the Company issued 33,448 shares of common
stock equivalent in value to $67,292 consisting of; $57,231 of the
seller's accounts receivable not part of the purchase; and $10,061 of
vendor payments made by the seller on behalf of the Company. Pro
forma information is not provided herein because of the transaction's
insignificant effect on the Company's financial statement.
On December 31, 1995 the Company and a subsidiary purchased for
$346,000 a 100% interest in a general partnership formed earlier in
1995 which owns the fixed site facility used by Orange Park. As the
Company's consideration for the partnership interest a mortgaged
note of $295,000 was assumed and 116,711 shares of common stock were
issued. Since the Company's controlling shareholders also controlled
the general partnership, the combination was recorded at historical
cost similar to a pooling of interest. Accordingly, a value of $.44
per share was ascribed to the stock issued. This combination had an
immaterial impact on the Company's statement of operations in 1995.
13) SHAREHOLDERS' EQUITY
STOCK OPTIONS
On April 21, 1995 the Board of Directors approved an Employee Stock
Option Plan ("employee plan") and a Non-employee Director Stock
Option plan ("director plan") for the purpose of competing
successfully in attracting, motivating, and retaining employees and
non-employee directors with outstanding abilities. Options granted
under the employee plan are intended to be incentive stock options.
The total number of shares to which options may be granted under the
employee and director plans are 200,000 shares. Generally, the
exercise price shall be fixed at no less than 100% of the average
fair market value of the shares at date of option.
In 1995 pursuant to the director plan the Board of Directors were
issued options for 80,000 shares in December 1995. These options
were exercised in December ,1995, at $1.06 per share for which the
Company received $84,800.
During 1996 options for 10,000 shares were granted under the
employee plan.
43
<PAGE> 44
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company's outstanding stock options
as of December 31, 1996, and 1995, and changes during the years
ending on those dates is presented below.
<TABLE>
<CAPTION>
Weighted Average
Exercise Price Shares
------
<S> <C> <C>
Options outstanding, December 31, 1994 - -
Options granted 80,000 $1.06
Options exercised 80,000 1.06
Options outstanding, December 31, 1995 - -
Options granted 10,000 3.00
Options exercised - -
Options outstanding, December 31, 1996 10,000 3.00
</TABLE>
The following table summarizes information concerning currently
outstanding and exercisable stock options.
<TABLE>
<CAPTION>
Weighted Weighted
Range of Number Remaining Contract Average
Exercise Prices Outstanding Life (Years) Exercise
--------------- ----------- ------------------ --------
<S> <C> <C> <C> <C>
Outstanding Options: $3.00 10,000 9 $3.00
Exercisable Options: 3.00 10,000 9 3.00
</TABLE>
The Company has adopted only the disclosure provisions of Financial
Accounting Standard No. 123 "Accounting of Stock-Based
Compensation," as it relates to employment awards. It applies APB
Option No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for its plans. If the
Company had elected to recognize compensation plans other than for
restricted stock. If the Company had elected to recognize
compensation expense based upon the fair value at the grant date for
wards under these plans consistent with the methodology prescribed by
SFAS 123, the Company's net loss per common share would be increased
to the pro forma amounts indicated below for the years ended December
31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net loss As reported $1,241,661 $835,058
Pro forma (unaudited) 1,261,661 837,458
Loss per common share As reported $ .48 $ .44
Pro forma (unaudited) .49 .44
</TABLE>
44
<PAGE> 45
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each option grant is estimated on the date of grant
using the Binomial options-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995, no
dividend yield for all years, expected volatility of approximately
124%; risk-free interest rates of approximately 6% and expected lives
of approximately 0-2.5 years. The Company's common stock activity has
had a volatile history. Because of the insignificant effect on the
pro forma amounts presented above, the Company has elected not to
attempt to adjust (lower) the volatility factor used. Such adjustment
would account for the various factors or conditions that probably
impacted the Company's common stock prices and which are possibly
non-recurring and not representative of future stock prices. Such an
adjustment which would lower the volatility factor used would further
reduce the calculated fair value of the options.
WARRANTS
In July, 1995 the Company offered to holders of outstanding common
stock purchase warrants (1,700,000) the opportunity to exchange five
warrants for two shares of stock. In September, 1995 the offer was
concluded. Approximately 94% of the outstanding warrants were
tendered in exchange for 642,918 shares of common stock.
Pursuant to consulting agreement dated March 29, 1996 between the
Company and an outside computer consultant the Board was authorized
100,000 warrants exercisable at $3.00 to be issued for services
rendered. The warrants were issued on July 25, 1996 and valued at
the fair value of the contracted services performed ($8,000.) 55,500
of these warrants were exercised during 1996.
In March on 1996, the Company entered into an agreement for
financial, consulting and investment banking services. The Company
agreed to pay a compensation for these services $16,000 plus issue
80,000 warrants for common stock as follows: 40,000 at $2.50 per
share exercisable through March 1999 and 40,000 at $3.00 per share
exercisable through March of 2001. The Company recognized $16,000 of
services in 1996. The 80,000 warrants, which have not yet been issued
(awarded) will be valued based upon the value of services to be
completed in 1997.
A summary of the status of the Company's outstanding warrants as of
December 31, 1996 and 1995, and changes during the years ending on
those dates is presented below.
<TABLE>
<CAPTION>
Weighted Average
Exercise Price Warrants
--------
<S> <C> <C>
Warrants outstanding, December 31, 1994 1,700,000 $7.20
Warrants granted - -
Warrants exchanged(1) 1,607,295 7.20
Warrants outstanding 92,705 7.20
Warrants granted 100,000 3.00
Warrants exercised 55,500 3.00
Warrants outstanding, December 31, 1996 137,205 3.00(2)
</TABLE>
-----------------
(1) In July of 1995, the Company offered to its holders of
outstanding warrants the opportunity to exchange five
warrants for two shares of common stock. The offer
concluded in September of 1995, with 94% of the outstanding
warrants exchanged for 642,918 common shares.
45
<PAGE> 46
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Effective May 24, 1996 the Company lowered the strike
price to $3.00 a share (the fair market value of the common
shares at that date) for all outstanding warrants at
that date.
The following table summarizes information concerning currently
outstanding and exercisable warrants:
<TABLE>
<CAPTION>
Weighted Weighted
Range of Number Remaining Contract Average
Exercise Prices Outstanding Life (Years) Exercise
--------------- ----------- ------------------ --------
<S> <C> <C> <C> <C>
Outstanding Warrants: $3.00 137,205 1 $3.00
Exercisable Warrants: 3.00 137,205 1 3.00
</TABLE>
(14) RELATED PARTIES
At December 31, 1996 the Company is indebted to the President of
Orange Park for $33,000 which is reflected in the December 31, 1996
balance sheet in a "Notes due to related parties." During the year
the Company reimbursed this executive approximately $10,000 for
expenses that he paid on behalf of the Company.
In February 1995, the Company, through a wholly-owned subsidiary,
National Diagnostics/Orange Park, Inc. ("Orange Park"), acquired the
assets of Medical Imaging Consultants, Inc., and certain of its
affiliates, providers of both mobile and fixed site ultrasound and
related diagnostic testing services in the cardiac, cerebral
vascular and neurophysiology areas, which currently operates in the
Jacksonville, Orange Park, Middleburg and Fernandina Beach areas of
Northern Florida. In connection therewith, the Company entered into
a lease agreement with Sundance Partners, a Florida general
partnership ("Sundance"), effective April 1, 1995. The lease relates
to Orange Park's approximately 5,100 square foot diagnostic facility
in Orange Park, Florida and is for a term of ten years providing
annual rental payments of approximately $44,000, subject to annual
adjustments based on the Consumer Price Index. The Company is the
guarantor of Orange Park's obligations under the lease. Messrs.
Taneja, Alliston, Traber, Ward and Baugh (the President and Chief
Operating Officer of Orange Park) were all general partners of
Sundance and collectively owned a 95% interest therein. Mr. Alliston
was the managing partner of Sundance. The Company believes the terms
of the lease are no less favorable than those that can be obtained
from unaffiliated third parties. In December 1995, the Company
purchased for $346,000 a 100% interest in Sundance. The partnership
costs in the underlying property was approximately $346,000 with an
appraised value of $660,000 (see note 12 to the financial
statements).
46
<PAGE> 47
NATIONAL DIAGNOSTICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company through its Orange Park facility utilizes various
diagnostic and office equipment leased by Neurophysiology
Associates, Inc ("NPA"). NPA is 100% owned by Ron Baugh, President
and Chief Operating Officer of Orange Park. The Company has agreed
to compensate NPA in no more or less favorable terms than the
original lease calls for. Monthly payments approximate $1,920;
annual rent expense approximated $22,874 in 1996. Certain payments
by the Company are made directly to the third party lessor.
In July of 1996, the Company entered into a month to month rental
arrangement for its regional office (approximately 2,200 square
feet) in northeast Florida with Medical Consultants Inc. Ron Baugh
(President and Chief Operating Officer of Orange Park) is 100% owner
of Medical Consultants, Inc. The agreement calls for rental payments
of $1,500 per month. Rent expense for these spaces in 1996 totaled
$9,000.
In July of 1996, a triple net lease became effective between the
Company and Sundance Partners II (a Florida general partnership) for
a free standing 7,100 medical facility used for Riverside's
Diagnostic Center. The facility is located in the Riverside area of
Jacksonville, Florida. The lease term is for an initial five years
with a one time option to extend for a five year period. Rent expense
for 1996 approximated $58,000. Sundance Partners II is 100% owned by
Messrs. J. Taneja and C. Alliston.
During 1995 the Company incurred approximately $88,000 in costs
related to a potential opening of a new site . Under an agreement
with Sundance III (a Florida general partnership) Sundance III was
to rent the Company its building for the above mentioned site.
However, in the event the Company was to abandon the opening,
Sundance III was to sell off the building and reimburse the Company
from the proceeds of such sale. In 1996, the project was abandoned,
sold and the reimbursement made.
In November 1996, J. Taneja and C. Alliston loaned the Company
approximately $33,000 each. The loans are due on demand and bear an
8% interest rate. The balance is recorded in "Notes due to
related parties."
One of the Company's directors (currently resigned) Mr. Traber is a
partner of Foley and Lardner, a law firm that is one of the
Company's legal counselors. Total expense to the firm amounted to
approximately $36,000 in 1996.
In March 1997, the Company borrowed $125,000 from a related party
corporation (majority owned by Messrs. Taneja and Alliston). The
proceeds were used to pay property taxes. The loan is due April 29,
1997 and is expected to be paid out of receipts from overdue
provider payments.
ITEM 8 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
47
<PAGE> 48
PART III
ITEM 9 - DIRECTOR, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Prior to February 1, 1997, the Board of Directors consisted of Jugal K. Taneja,
Curtis L. Alliston, Martin A. Traber, Donald Ward and Susan Carmichael. Mr.
Ward resigned as a director effective January 1, 1997. Mr. Traber resigned as
director effective March 27, 1997. Susan Carmichael resigned as director
effective April 7, 1997.
JUGAL K. TANEJA, Age 51, currently is a director, the Chief Executive officer
and Secretary of the Company. Mr. Taneja also serves as the Chairman, Chief
Executive Officer and director of NuMED Home Health Care, Inc. and Chief
Executive Officer and director of NuMED Surgical, Inc., publicly-held entities
involved in the home health care and medical equipment industries. He also
serves as the President and director of Bancequity Petroleum, Inc. Before his
association with Bancapital and NuMED, Mr. Taneja served as Senior Vice
President of Union Commerce Bank and Huntington National Bank.
CURTIS L. ALLISTON, Age 52, currently is a director, the President and Chief
Operating Officer of the Company. He also serves as a director and the
President and Chief Executive Officer of Brandon Clinical Associates, Inc., a
home health care group, and President and Chief Executive Officer of Alliston
Enterprises, an investment and construction Company. From 1988 to 1992, he
served as President and Chief Executive Officer of Tampa Medical Group
Management, a medical practice management firm, and President and Chief
Executive Officer of Bay Cardiac Imaging, a mobile cardiac ultrasound service
provider. Mr. Alliston was the founder of Positron Partners, Inc., a joint
venture specializing in positron emission tomography, and served as its
President and Chief Executive Officer from 1990 to 1992. Also, from 1990 to
1993, Mr. Alliston served as the President and Chief Executive officer of
Cleveland Avenue Real Estate Partners, a medical real estate investment group.
MARTIN A. TRABER, Age 48, is a partner in the law firm of Foley & Lardner, a
national general practice law firm. He has also served as an Adjunct Professor
of Law at Cleveland Marshall Law School where he structured a course on and
lectured in the area of real estate finance. Prior to joining Foley & Lardner
in August, 1994, he practiced with Arter & Hadden since 1970 and was a partner
in the Cleveland office.
DONALD G. WARD, Age 53, has served as Administrative Director of Clay
Cardiology Associates, P.A., a group of cardiology specialists associated with
several major hospitals in northeastern Florida and northeastern Georgia, since
1992. From 1990 to 1992, Mr. Ward was the Director of Special Projects/Mobile
Imaging Services for St. Vincent's Health Care Systems in Jacksonville,
Florida. Prior thereto, he has served in various position in the health care
industry.
SUSAN J. CARMICHAEL, Age 48, is currently President and Chief Operating Officer
of NuMED Home Health Care, Inc. and Board Director since 1991. Ms. Carmichael
was the past President of Whole Person Home Health Care and Pennsylvania
Medical Concepts prior to being purchased by NuMED to serve as its entrance
into the home health industry. NuMED employs an average of 500+ employees and
caring for 700+ clients in Florida, Pennsylvania, and Ohio. Previously
Co-owner, President, and Chairperson of the Board for Health Consulting
Associates (1981-1985), served as Chairperson for the Erie Pennsylvania Mental
Health/Mental Retardation Board for two, six-year terms, and has received the
"Outstanding Service to the Community" citation from Erie County.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, officers and holders of more than 10% of the Common Stock to file
with the Securities Exchange commission initial reports of beneficial ownership
and reports of changes in beneficial ownership of Common Stock and any other
equity securities of the Company. To the Company's knowledge, based solely upon
a review of the forms filed with the Company by such person, all such Section
16(a) filing requirements were complied with by such persons in 1996.
48
<PAGE> 49
ITEM 10 -- EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation paid
to or earned by the Company's Chief Executive Officer and President. No other
executive officer earned more than $100,000 for the fiscal years ended December
31, 1995 and 1996. The directors of the Company receive no compensation.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS ANNUAL COMPENSATION
-------------------
FISCAL ALL OTHER SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- --------------------------- ----- ------ ----- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
Jugal K. Taneja, 1996 75,000 68,015(2) 20,356(1) -
Chief Executive Officer 1995 76,250 75,614 18,958(1) 25,000
1994 10,000 10,000 16,400(1) -
1993 - - - -
Curtis L. Alliston, 1996 150,000 68,015(2) 20,356(1) -
President and Chief 1995 150,000 69,125 19,708(1) 25,000
Operating officer 1994 83,600 54,000 8,700(1) -
1993 75,000 - 6,700(1) -
</TABLE>
- --------------
(1) Represents club dues and automobiles expense allowance.
(2) Not yet paid at April 11, 1997
The following tables set forth information with respect to grants of options to
purchase shares of Common Stock during 1996 to the executive officers named in
the Summary Compensation Table. The amounts shown as potential realizable
values on the options are based on assumed annualized rates of appreciation in
the price of the Common Stock of 0%, 5% and 10% over the term of the options,
as set forth in rules of the Securities and Exchange Commission. Actual gains,
if any, on stock option exercises are dependent on future performance of the
Common Stock. There can be no assurance that the potential realizable values
reflected in this table will be achieved.
49
<PAGE> 50
STOCK OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
MARKET
% OF TOTAL PRICE PER POTENTIAL REALIZABLE VALUE AT ASSUMED
OPTIONS SHARE OF ANNUAL RATES OF STOCK PRICE
NUMBERS OF GRANTED TO UNDERLYING APPRECIATION FOR OPTION TERM (2)
SECURITIES EMPLOYEES SECURITY ON -----------------------------------
UNDERLYING IN FISCAL EXERCISE DATE OF EXPIRATION
NAME OPTIONS GRANTED 1996 PRICE PER SHARE GRANT (1) DATE 0% 5% 10%
- --------------- ---------------- ------------ --------------- ------------- ---------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
No options were granted to executive officers in 1996.
- ----------------
The following table sets forth information concerning each exercise of options
during 1996 by the executive officers named in the Summary Compensation Table.
No options were outstanding as of December 31, 1996.
OPTION EXERCISES IN 1995
<TABLE>
<CAPTION>
SHARES ACQUIRED ON
NAME EXERCISE VALUE REALIZED ($)
---- ------------------ ------------------
<S> <C> <C>
</TABLE>
No options were exercised by executives in 1996.
ITEM 11 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of the Record Date, with respect to: (i) each of
the Company's directors; (ii) each of the Company's executive officers named in
the Summary Compensation Table; (iii) all directors and executive officers of
the Company as a group; and (iv) each person known by the Company to own
beneficially more than 5% of the Common Stock. Except as otherwise indicated,
each of the shareholders listed below has sole voting and investment power over
the shares beneficially owned.
<TABLE>
<CAPTION>
BENEFICIALLY OWNED
----------------------
NAME SHARES PERCENT
- ---- --------- -------
<S> <C> <C>
Jugal K. Taneja(1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,020,000 38.8%
Curtis L. Alliston(1)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520,000 19.8%
Donald G. Ward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5936 *
Martin A. Traber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,671 *
Susan J. Carmichael . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Directors and executive officers as a group (5 persons)(4) . . . . . . . . . . . . . . . . . . . . . . . 1,557,607 59.3%
</TABLE>
- ----------------------
* Less than 1%
(1) The business address of Messrs. Taneja and Alliston is 751 West
Brandon Boulevard, Brandon, Florida 33511.
(2) Includes 100,000 shares of Common Stock held by First Delhi
Trust established in 1987 which was established for the benefit of
Mr. Taneja's children, over which Mr. Taneja will exercise voting
rights; 720,000 shares are held by Twenty First Century Health Care
Fund, LLC ("CHCF") over which Mr. Taneja has no economic interest but
shares voting rights with other members of CHCF.
50
<PAGE> 51
(3) Includes 100,000 shares of Common Stock held by Alliston Family
Limited Partnership, which was established for the benefit of Mr.
Alliston's children, over which Mr. Alliston will exercise voting
rights.
(4) Includes notes (1) through (3) above.
ITEM 12 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
On April 21, 1995 the Board of Directors approved an Employee Stock Option Plan
("employee plan") and a Non-employee Director Stock Option plan ("director
plan") for the purpose of competing successfully in attracting, motivating, and
retaining employees and non-employee directors with outstanding abilities.
Options granted under the employee plan are intended to be incentive stock
options. The total number of shares to which options may be granted under the
employee and director plans are 200,000 shares. Generally, the exercise price
shall be fixed at no less than 100% of the average fair market value of the
shares at date of option.
In 1995 pursuant to the director plan the Board of Directors were issued
options for 80,000 shares. These options were exercised at $1.06 per share for
which the Company received $84,800. During 1996 the Company granted options for
10,000 shares exercisable at $3 per share under the Employee Plan. At December
31, 1996 there are no outstanding options under the Director Plan and there are
10,000 outstanding options under the Employee Plan.
In July, 1995 the Company offered to holders of outstanding common stock
purchase warrants (1,700,000) the opportunity to exchange five warrants for two
shares of stock. In September, 1995 the offer was concluded. Approximately 94%
of the outstanding warrants were tendered in exchange for 642,918 shares of
common stock. Messrs. Taneja and Alliston received 320,000 and 160,000 common
shares of stock, respectively in exchange of the warrants they were holding.
In March of 1996, the Company entered into an agreement with Judson
Enterprises, LTD to provided financial, consulting and banking services. As
compensation for these services the Company agreed to pay Judson Enterprises,
Inc. $16,000 and issue warrants for the purchase of 80,000 shares of common
stock. Forty thousand (40,000) warrants will be exercisable at $2.50 per share
expiring March, 1999; forty thousand (40,000) warrants will be exercisable at
$3.00 per share expiring March, 2001. Currently, the Company owes $12,000
toward the balance and has not issued the warrants.
During 1995 the Company incurred approximately $88,000 in costs related to a
potential opening of a new site . Under an agreement with Sundance III (a
Florida general partnership) Sundance III was to rent the Company its building
for the above mentioned site. However, in the event the Company was to abandon
the opening, Sundance III was to sell off the building and reimburse the
Company from the proceeds of such sale. In 1996, the project was abandoned,
sold and the reimbursement made.
All future material affiliated transactions and loans will be made or entered
into on terms no less favorable to the Company than those that can be obtained
from unaffiliated third parties, and all future material affiliated members of
the Company's board of directors who do not have an interest in the
transaction.
The Company through its Orange Park facility utilizes various diagnostic and
office equipment leased by Neurophysiology Associates, Inc ("NPA"). NPA is 100%
owned by Ron Baugh, President and Chief Operating Officer of Orange Park. The
Company has agreed to compensate NPA in no more or less favorable terms than the
original lease calls for. Monthly
51
<PAGE> 52
payments approximate $1,920; annual rent expense approximated $22,874 in 1996.
Certain payments by the Company are made directly to the third party lessor.
In July of 1996, the Company entered into a month to month rental arrangement
for its regional office (approximately 2,200 square feet) in northeast Florida
with Medical Consultants Inc. Ron Baugh (President and Chief Operating Officer
of Orange Park) is 100% owner of Medical Consultants, Inc. The agreement calls
for rental payments of $1,500 per month. Rent expense for these spaces in 1996
totaled $9,000.
In July of 1996, a triple net lease became effective between the Company and
Sundance Partners II (a Florida general partnership) for a free standing 7,100
medical facility used for Riverside's Diagnostic Center. The facility is
located in the Riverside area (an old "upscale" residential area) of
Jacksonville, Florida. The lease term is for an initial five years with a one
time option to extend for a five year period. Rent expense for 1996
approximated $58,000. Sundance Partners II is 100% owned by Messrs. J. Taneja
and C. Alliston.
One of the Company's directors (currently resigned) Mr. Traber is a partner of
Foley and Lardner, a law firm that is one of the Company's legal counselors.
Total expense to the firm amounted to approximately $36,000 in 1996.
In November, 1996 J. Taneja and C. Alliston loaned the Company approximately
$33,000 each. The loans are due on demand and bear an 8% interest rate. The
balance due is recorded in "Notes due to related parties."
At December 31, 1996 the Company is indebted to the President of Orange Park
for $33,000 which is reflected in the December 31, 1996 balance sheet in a
"Notes due to related parties." During the year the Company reimbursed this
executive approximately $10,000 for expenses that he paid on behalf of the
Company.
In March of 1997 the Company borrowed $125,000 from a related party corporation
(majority owned by Messrs. Taneja and Alliston). The proceeds were used to pay
property taxes.
52
<PAGE> 53
ITEM 13 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) List of exhibits filed as part of this report:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1 Articles of Incorporation of the Company (Exhibit 3.1 to the company's Form SB-1 Registration Statement (Reg. No. 33-80612)
is incorporated by reference herein).
3.2 By-laws of the Company (Exhibit 3.2 to the Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is incorporated
by reference herein).
4.1 1995 Employee Stock Option Plan. (Exhibit 4.1 of Company's Form S-8 Registration No. 33-80293 is incorporated by reference
herein).
4.2 1995 Non-Employee Director Stock Option Plan. (Exhibit 4.2 of Company's Form S-8 Registration No. 80293 is incorporated by
reference herein).
4.3 Warrants Agreement (Exhibit 4.4 to Amendment No. 3 to the Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is
incorporated by reference herein).
10.1 Employment Agreement by and between the Company and Curtis L. Alliston dated April 4, 1995. (Exhibit 10.1 of Company's Form
10-QSB for the period ended March 31, 1995 is incorporated by reference herein).
10.2 Employment Agreement by and between the Company and Jugal K. Taneja dated April 4, 1995. (Exhibit 10.2 of Company's Form
10-QSB for the period ended March 31, 1995 is incorporated by reference herein).
10.3 Lease Agreement dated April 1, 1995 by and between National Diagnostics/Orange Park, Inc. and Sundance Partners. (Exhibit
10.3 of Company's Form 10-QSB for the period ended March 31, 1995 is incorporated by reference herein).
10.4 Brandon Diagnostic Center, Ltd.'s Revolving Note dated May 30, 1995. (Exhibit 10.1 of Company's Form 10-QSB for the
period ended June 30, 1995 is incorporated by reference herein.)
10.5 Employment Agreement by and between the Company and Curtis L. Alliston dated November 10, 1995.(Exhibit 10.1 of Company's
Form 10-QSB for the period ended September 30, 1995 is incorporated by reference herein).
10.6 Employment Agreement by and between the Company and Jugal K. Taneja dated November 10, 1995. (Exhibit 10.2 of Company's
Form 10-QSB for the period ended September 30, 1995 is incorporated by reference herein).
10.7 Lease Agreement dated July 12, 1995 between National Diagnostics/Orange Park, Inc. and Siemens Medical Systems, Inc.
effective September 14, 1995. (Exhibit 10.3 of Company's Form 10-QSB for the period ended September 30, 1995 is
incorporated by reference herein).
10.8 Professional services agreement dated December 21, 1995 between Brandon Diagnostic Center, Ltd., SunPoint Diagnostic
Center, Inc. and Robert D. Marshall, M.D., P.A (Exhibit 10.8 of Company's Form 10-KSB for the period ended December 31,
1995 filed on April 1, 1996 is incorporated by reference herein).
10.9 Purchase agreement dated February 19, 1996 between National Diagnostics, Inc., National Diagnostics/Orange Park, Sundance
Partners, and partners (Exhibit 10.9 of the Company's Form 10-KSB for the period ended December 31, 1995 filed on
April 1, 1996 is incorporated by reference herein).
</TABLE>
53
<PAGE> 54
<TABLE>
<S> <C>
December 31, 1995 filed on April 1, 1996 is incorporated by reference herein).
10.10 Agreement of Partnership of Sundance Partners (a Florida partnership) date March 1, 1995. (Exhibit 10.10 of the Company's
Form 10-KSB for the period ended December 31, 1995 filed on April 1, 1996 is incorporated by reference herein).
10.11 Lease Agreement dated September 3, 1991 and modification thereto dated August 8, 1992 by and between
Brandon Diagnostic Center, Ltd. and Bay Land Investment, Inc. relating to a portion of the Company's Brandon,
Florida facility (Exhibit 10.2 to the Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is
incorporated by reference herein).
10.12 Lease Agreement dated February 1, 1992 and modification thereto dated August 8, 1992 by and between Brandon
Diagnostic Center, ltd. and Bay Land Investment, Inc. relating to a portion of the Company's Brandon Florida
facility (Exhibit 10.3 to the Company's Form SB-1 Registration Statement Reg. No. 33-80612) is incorporated by
reference herein).
10.13 Lease Agreement dated January 15, 1993 by and between Brandon Diagnostic Center, ltd. and Bay Land
Investment, Inc. relating to a portion of the Company's Brandon, Florida facility (Exhibit 10.4 to the Company's
Form SB-1 Registration Statement (Reg. no. 33-80612) is incorporated by reference herein).
10.14 Lease Agreement dated May 4, 1994 by and between Alpha Associates, Inc. and Sun Point Associates, Inc. and
Sun Point Associates relating to the Company's Ruskin, Florida facility (Exhibit 10.5 to the Company's for SB-1
Registration Statement (Reg. No. 33-80612) is incorporated by reference herein).
10.15 Equipment Lease Agreement dated September 11, 1991 by and between Brandon Diagnostic Center, ltd. and
Siemens Credit Corporation and supplements thereto relating to the Company's magnetic resonance imaging
equipment (Exhibit 10.6 to the Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is
incorporated by reference herein).
10.16 Equipment Lease Agreement dated September 11, 1991 by and between Brandon Diagnostic Center, ltd. and
Siemens Credit Corporation and supplement thereto relating to the Company's computer tomography equipment
(Exhibit 10.7 to the Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is incorporated by
reference herein).
10.17 Equipment Lease Agreement dated November 18, 1991 by and between Brandon Diagnostic Center, ltd. and
Siemens Credit Corporation and supplements thereto relating to the Company's nuclear medicine equipment
(Exhibit 10.9 to the Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is incorporated by
reference herein).
10.18 Professional Services Agreement dated June 7, 1993 by and between Brandon Diagnostic Center, Ltd. and East
Pasco Radiology Associates, P.A. (Exhibit 10.13 to the Company's Form SB-1 Registration Statement (Reg. No.
33-80612) is incorporated by reference herein).
10.19 Lease Agreement dated September 1, 1994 by and between Highland Properties of Gulf Coast, Ltd. and Brandon
Diagnostic Center, ltd. relating to the Company's Brandon, Florida facility (Exhibit 10.21 to Amendment No. 3 to
the Company's form SB-1 Registration Statement (Reg. No. 33-80612 is incorporated by reference herein).
10.20 Asset Purchase Agreement effective November 1, 1993 by and between Alpha Acquisitions Corp. and Equipment
Company of Brandon, Inc. pertaining to the acquisition by Alpha Acquisitions Corp. of the 40% limited
partnership interest in Brandon Diagnostic Center, Ltd. (Exhibit 10.22 to Amendment No. 3 to the company's
form SB-1 Registration Statement (Reg. No. 33-80612) is incorporated by reference herein).
</TABLE>
54
<PAGE> 55
<TABLE>
<S> <C>
10.21 Unit Purchase Option dated September 27, 1994 relating to 50,000 Units (Exhibit 4.5 to Amendment No. 2 to the
Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is incorporated by reference herein).
10.22 Equipment Lease Agreement dated July 19, 1994 by and between Medical Consultants of Middleburg, Inc. and Copelco Capital
Corporation relating to Orange Park's ultrasound equipment (Exhibit 10.17 to the Company's form 10-KSB for December 31,
1994 is incorporated by reference herein).
10.23 Master Lease Agreement dated June 27, 1994 by and between Alpha Associates, Inc. d/b/a Brandon Diagnostic Center and
Copelco Leasing Corporation and schedules thereto relating to SunPoint's diagnostic imaging equipment (Exhibit 10.18 to the
Company's form 10-KSB for December 31, 1994 is incorporated by reference herein).
10.24 Equipment Lease Agreement dated August 1, 1994 by and between Brandon Diagnostic Center, ltd. and Siemens Credit
Corporation relating to SunPoint's diagnostic imaging equipment (Exhibit 10.19 to the Company's form 10-KSB for December
31, 1994 is incorporated by reference herein).
10.25 Asset Purchase Agreement, dated February 6, 1995 and effective as of January 31, 1995, as amended, by and
among Middleburg Medical Imaging Consultants, Inc. (renamed National Diagnostics/Orange Park, Inc.), Medical
Consultants of Middleburg, Inc. and Medical Imaging Consultants, Inc. (Exhibit 10.20 to the Company's form 10-
KSB for December 31, 1994 is incorporated by reference herein).
10.26 Employment Contract, dated February 6, 1995 and effective as of January 31, 1995, by and between Ronald D. Baugh and
Middleburg Medical Imaging consultants, Inc. (Exhibit 10.21 to the Company's form 10-KSB for December 31, 1994 is
incorporated by reference herein).
10.27 Professional Services Agreement, effective as of November 7, 1994, by and between SunPoint Diagnostic Center,
Inc. and East Pasco Radiology Associates, Inc. (Exhibit 10.22 to the Company's form 10-KSB for December 31,
1994 is incorporated by reference herein).
10.28 Professional Services Agreement, dated November 30, 1994, by and between the Company and Drs. Hurt, Isaacs, Johnston and
Cranford, P.A. (Exhibit 10.23 to the Company's form 10-KSB for December 31, 1994 is incorporated by reference herein).
10.29 Services Agreement, dated November 17, 1994, by and between Diagnostic Cardiology Associates, P.A. and the Company (Exhibit
10.24 to the Company's form 10-KSB for December 31, 1994 is incorporated by reference herein).
10.30 Term Loan Agreement and Revolving Loan Agreement, both dated March 6, 1994, by and between Brandon Diagnostic Center, Ltd.
and SouthTrust Bank of West Florida, and related Notes and Security Agreements (Exhibit 10.25 to the Company's form 10-KSB
for December 31, 1994 is incorporated by reference herein).
10.31 Lease Agreement dated August 15, 1995 between National Diagnostics/Riverside, Inc. ("Riverside") and Sundance Partners II
relating to the Company's Riverside fixed site facility. (Exhibit 10.33 to the Company's 10-QSB for June 30, 1996 is
incorporated by reference herein).
10.32 Equipment Lease Agreement dated July 15, 1996 between National Diagnostics/Riverside, Inc. and Siemens Credit Corporation
relating to Riverside's computer tomography equipment. (Exhibit 10.34 to the Company's 10-QSB for September 30, 1996 is
incorporated by reference herein).
10.33 Equipment Lease Agreement dated August 12, 1996 between National Diagnostics/Riverside, Inc. and Siemens Credit Corporation
relating to the Riverside's ultrasound equipment. (Exhibit 10.35 to the Company's 10-QSB for September 30, 1996 is
incorporated by reference herein).
</TABLE>
55
<PAGE> 56
<TABLE>
<S> <C>
10.34 Promissory Note and Business Loan Agreement dated September 9, 1996 between Brandon Diagnostic Center, Ltd. and South
Hillsborough Community Bank related to equipment refinancing. (Exhibit 10.36 to the Company's 10-QSB for September 30, 1996
is incorporated by reference herein).
10.35 Equipment Lease Agreement dated September 11, 1996 between National Diagnostics/Riverside, Inc. ("Riverside") and Siemens
Credit Corporation relating to Riverside's Sireskop C. (Exhibit 10.37 to the Company's 10-QSB for September 30, 1996 is
incorporated by reference herein).
10.36 Loan and Security Agreement dated September 13,1996 between National Diagnostics, Inc. and DVI Business
Credit Corporation relating to the Company's line of credit. (Exhibit 10.38 to the Company's 10-QSB for
September 30, 1996 is incorporated by reference herein).
10.37 Promissory Note and Business Loan Agreement dated December 23, 1996 between Brandon Diagnostic Center,
Ltd. and South Hillsborough Community Bank related to the purchase of Stereotactic Mammography equipment.
10.38 Equipment Lease Agreement dated January 22, 1997 between Brandon Diagnostic Center, Ltd. ("Brandon") and
Siemens Credit Corporation relating to Brandon's Sireskop C.
10.39 Professional Service Agreement, effective February 1, 1997, by and between SunPoint Diagnostic Center, Inc. and
TeleQuest, Inc.
10.40 Professional Service Agreement, effective February 1, 1997, by and between National Diagnostics/Orange Park,
Inc. and TeleQuest, Inc.
10.41 Professional Service Agreement, effective February 1, 1997, by and between Brandon Diagnostic Center, Ltd. and
TeleQuest, Inc.
10.42 Promissory Note and Security Agreement dated February 18, 1997 between National Diagnostics, Inc. and DVI
Business Credit Corporation relating to the Company's installment loan.
20.1 National Diagnostics, Inc. Offer to Exchange dated July 6, 1995. (Exhibit 20.1 to the Company's Form 10-QSB
for the period ended June 30, 1995 is incorporated by reference herein).
21 Subsidiaries of Registrant.
23.1 Consent of Independent Certified Public Accountants-Grant Thornton LLP
24 Powers of Attorney (included on signature page) (Exhibit 24 of the Company's Form 10-KSB for the period ended December 31,
1995 filed on April 1, 1996 is incorporated by reference herein).
27 Financial Data Schedule (for SEC use only).
</TABLE>
(b) Reports on Form 8-K.
No Form 8-K was filed by the Company in 1996.
56
<PAGE> 57
SIGNATURES
IN ACCORDANCE WITH SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Date: April 15, 1997 NATIONAL DIAGNOSTICS, INC.
By: /s/ Curtis L. Alliston
-----------------------------
Curtis L. Alliston
President and Chief Operating
Officer
By: /s/ Dennis C. Hult
-----------------------------
Dennis C. Hult
Comptroller
57
<PAGE> 58
EXHIBIT INDEX
<TABLE>
<CAPTION>
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<S> <C> <C>
3.1 Articles of Incorporation of the Company (Exhibit 3.1 to the company's Form
SB-1 Registration Statement (Reg. No. 33-80612) is incorporated
by reference herein).
3.2 By-laws of the Company (Exhibit 3.2 to the Company's Form SB-1 Registration
Statement (Reg. No. 33-80612) is incorporated by reference herein).
4.1 1995 Employee Stock Option Plan. (Exhibit 4.1 of Company's Form S-8
Registration No.33-80293 is incorporated by reference herein).
4.2 1995 Non-Employee Director Stock Option Plan. (Exhibit 4.2 of Company's
Form S-8 Registration No. 80293 is incorporated by reference herein).
4.3 Warrants Agreement (Exhibit 4.4 to Amendment No. 3 to the Company's Form
SB-1 Registration Statement (Reg. No. 33-80612) is incorporated by reference
herein).
10.1 Employment Agreement by and between the Company and Curtis L. Alliston
dated April 4, 1995. (Exhibit 10.1 of Company's Form 10-QSB for the
period ended March 31, 1995 is incorporated by reference herein).
10.2 Employment Agreement by and between the Company and Jugal K. Taneja
dated April 4, 1995. (Exhibit 10.2 of Company's Form 10-QSB for the
period ended March 31, 1995 is incorporated by reference herein).
10.3 Lease Agreement dated April 1, 1995 by and between National Diagnostics/
Orange Park, Inc. and Sundance Partners. (Exhibit 10.3 of Company's Form
10-QSB for the period ended March 31, 1995 is incorporated by reference herein).
10.4 Brandon Diagnostic Center, Ltd.'s Revolving Note dated May 30, 1995.
(Exhibit 10.1 of Company's Form 10-QSB for the period ended June 30,
1995 is incorporated by reference herein.)
10.5 Employment Agreement by and between the Company and Curtis L. Alliston
dated November 10, 1995.(Exhibit 10.1 of Company's Form 10-QSB for the
period ended September 30, 1995 is incorporated by reference herein).
10.6 Employment Agreement by and between the Company and Jugal K. Taneja
dated November 10, 1995. (Exhibit 10.2 of Company's Form 10-QSB for
the period ended September 30, 1995 is incorporated by reference
herein).
</TABLE>
58
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<CAPTION>
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Exhibit Numbering
Number Description of Document System
- ------ ----------------------- -------------
<S> <C> <C>
10.7 Lease Agreement dated July 12, 1995 between National Diagnostics/Orange
Park, Inc. and Siemens Medical Systems, Inc. effective September 14, 1995.
(Exhibit 10.3 of Company's Form 10-QSB for the period ended September 30,
1995 is incorporated by reference herein).
10.8 Professional services agreement dated December 21, 1995 between
Brandon Diagnostic Center, Ltd., SunPoint Diagnostic Center, Inc. and
Robert D. Marshall, M.D., P.A (Exhibit 10.8 of Company's Form 10-KSB
for the period ended December 31, 1995 filed on April 1, 1996 is
incorporated by reference herein).
10.9 Purchase agreement dated February 19, 1996 between National
Diagnostics, Inc., National Diagnostics/Orange Park, Sundance
Partners, and partners (Exhibit 10.9 of the Company's Form 10-KSB for
the period ended December 31, 1995 filed on April 1, 1996 is
incorporated by reference herein).
10.10 Agreement of Partnership of Sundance Partners (a Florida partnership)
date March 1, 1995. (Exhibit 10.10 of the Company's Form 10-KSB for
the period ended December 31, 1995 filed on April 1, 1996 is
incorporated by reference herein).
10.11 Lease Agreement dated September 3, 1991 and modification thereto dated August 8,
1992 by and between Brandon Diagnostic Center, Ltd. and Bay Land Investment,
Inc. relating to a portion of the Company's Brandon, Florida facility (Exhibit 10.2 to
the Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is
incorporated by reference herein).
10.12 Lease Agreement dated February 1, 1992 and modification thereto dated August 8,
1992 by and between Brandon Diagnostic Center, ltd. and Bay Land Investment,
Inc. relating to a portion of the Company's Brandon Florida facility (Exhibit 10.3
to the Company's Form SB-1 Registration Statement Reg. No. 33-80612) is
incorporated by reference herein).
10.13 Lease Agreement dated January 15, 1993 by and between Brandon Diagnostic
Center, ltd. and Bay Land Investment, Inc. relating to a portion of the Company's
Brandon, Florida facility (Exhibit 10.4 to the Company's Form SB-1 Registration
Statement (Reg. no. 33-80612) is incorporated by reference herein).
10.14 Lease Agreement dated May 4, 1994 by and between Alpha Associates, Inc. and
Sun Point Associates, Inc. and Sun Point Associates relating to the Company's
Ruskin, Florida facility (Exhibit 10.5 to the Company's for SB-1 Registration
Statement (Reg. No. 33-80612) is incorporated by reference herein).
</TABLE>
59
<PAGE> 60
EXHIBIT INDEX
<TABLE>
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10.15 Equipment Lease Agreement dated September 11, 1991 by and between Brandon
Diagnostic Center, ltd. and Siemens Credit Corporation and supplements
thereto relating to the Company's magnetic resonance imaging equipment
(Exhibit 10.6 to the Company's Form SB-1 Registration Statement
(Reg. No. 33-80612) is incorporated by reference herein).
10.16 Equipment Lease Agreement dated September 11, 1991 by and between
Brandon Diagnostic Center, ltd. and Siemens Credit Corporation and
supplement thereto relating to the Company's computer tomography
equipment (Exhibit 10.7 to the Company's Form SB-1 Registration Statement
(Reg. No. 33-80612) is incorporated by reference herein).
10.17 Equipment Lease Agreement dated November 18, 1991 by and between Brandon
Diagnostic Center, ltd. and Siemens Credit Corporation and supplements thereto
relating to the Company's nuclear medicine equipment (Exhibit 10.9 to the
Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is incorporated
by reference herein).
10.18 Professional Services Agreement dated June 7, 1993 by and between Brandon
Diagnostic Center, Ltd. and East Pasco Radiology Associates, P.A. (Exhibit 10.13
to the Company's Form SB-1 Registration Statement (Reg. No. 33-80612) is
incorporated by reference herein).
10.19 Lease Agreement dated September 1, 1994 by and between Highland Properties
of Gulf Coast, Ltd. and Brandon Diagnostic Center, ltd. relating to the
Company's Brandon, Florida facility (Exhibit 10.21 to Amendment No. 3 to
the Company's form SB-1 Registration Statement (Reg. No. 33-80612 is
incorporated by reference herein).
10.20 Asset Purchase Agreement effective November 1, 1993 by and between Alpha
Acquisitions Corp. and Equipment Company of Brandon, Inc. pertaining to the
acquisition by Alpha Acquisitions Corp. of the 40% limited partnership interest
in Brandon Diagnostic Center, Ltd. (Exhibit 10.22 to Amendment No. 3 to the
company's form SB-1 Registration Statement (Reg. No. 33-80612) is incorporated
by reference herein).
10.21 Unit Purchase Option dated September 27, 1994 relating to 50,000 Units
(Exhibit 4.5 to Amendment No. 2 to the Company's Form SB-1 Registration
Statement (Reg. No. 33-80612) is incorporated by reference herein).
</TABLE>
60
<PAGE> 61
EXHIBIT INDEX
<TABLE>
<CAPTION>
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10.22 Equipment Lease Agreement dated July 19, 1994 by and between Medical
Consultants of Middleburg, Inc. and Copelco Capital Corporation
relating to Orange Park's ultrasound equipment (Exhibit 10.17 to the
Company's form 10-KSB for December 31, 1994 is incorporated by
reference herein).
10.23 Master Lease Agreement dated June 27, 1994 by and between Alpha
Associates, Inc. d/b/a Brandon Diagnostic Center and Copelco Leasing
Corporation and schedules thereto relating to SunPoint's diagnostic
imaging equipment (Exhibit 10.18 to the Company's form 10-KSB for
December 31, 1994 is incorporated by reference herein).
10.24 Equipment Lease Agreement dated August 1, 1994 by and between Brandon
Diagnostic Center, ltd. and Siemens Credit Corporation relating to
SunPoint's diagnostic imaging equipment (Exhibit 10.19 to the
Company's form 10-KSB for December 31, 1994 is incorporated by
reference herein).
10.25 Asset Purchase Agreement, dated February 6, 1995 and effective as of January
31, 1995, as amended, by and among Middleburg Medical Imaging Consultants,
Inc. (renamed National Diagnostics/Orange Park, Inc.), Medical Consultants of
Middleburg, Inc. and Medical Imaging Consultants, Inc. (Exhibit 10.20 to the
Company's form 10-KSB for December 31, 1994 is incorporated by reference herein).
10.26 Employment Contract, dated February 6, 1995 and effective as of
January 31, 1995, by and between Ronald D. Baugh and Middleburg
Medical Imaging consultants, Inc. (Exhibit 10.21 to the Company's form
10-KSB for December 31, 1994 is incorporated by reference herein).
10.27 Professional Services Agreement, effective as of November 7, 1994, by and
between SunPoint Diagnostic Center, Inc. and East Pasco Radiology Associates,
Inc. (Exhibit 10.22 to the Company's form 10-KSB for December 31, 1994 is
incorporated by reference herein).
10.28 Professional Services Agreement, dated November 30, 1994, by and
between the Company and Drs. Hurt, Isaacs, Johnston and Cranford, P.A.
(Exhibit 10.23 to the Company's form 10-KSB for December 31, 1994 is
incorporated by reference herein).
10.29 Services Agreement, dated November 17, 1994, by and between Diagnostic
Cardiology Associates, P.A. and the Company (Exhibit 10.24 to the
Company's form 10-KSB for December 31, 1994 is incorporated by
reference herein).
</TABLE>
61
<PAGE> 62
EXHIBIT INDEX
<TABLE>
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10.30 Term Loan Agreement and Revolving Loan Agreement, both dated March 6,
1994, by and between Brandon Diagnostic Center, Ltd. and SouthTrust
Bank of West Florida, and related Notes and Security Agreements
(Exhibit 10.25 to the Company's form 10-KSB for December 31, 1994 is
incorporated by reference herein).
10.31 Lease Agreement dated August 15, 1995 between National
Diagnostics/Riverside, Inc. ("Riverside") and Sundance Partners II
relating to the Company's Riverside fixed site facility. (Exhibit
10.33 to the Company's 10-QSB for June 30, 1996 is incorporated by
reference herein).
10.32 Equipment Lease Agreement dated July 15, 1996 between National
Diagnostics/ Riverside, Inc. and Siemens Credit Corporation relating
to Riverside's computer tomography equipment. (Exhibit 10.34 to the
Company's 10-QSB for September 30, 1996 is incorporated by reference
herein).
10.33 Equipment Lease Agreement dated August 12, 1996 between National
Diagnostics/Riverside, Inc. and Siemens Credit Corporation relating to
the Riverside's ultrasound equipment. (Exhibit 10.35 to the Company's
10-QSB for September 30, 1996 is incorporated by reference herein).
10.34 Promissory Note and Business Loan Agreement dated September 9, 1996
between Brandon Diagnositc Center, Ltd. and South Hillsborough
Community Bank related to equipment refinancing. (Exhibit 10.36 to the
Company's 10-QSB for September 30, 1996 is incorporated by reference
herein).
10.35 Equipment Lease Agreement dated September 11, 1996 between National
Diagnostics/Riverside, Inc. ("Riverside") and Siemens Credit
Corporation relating to Riverside's Sireskop CX. (Exhibit 10.37 to the
Company's 10-QSB for September 30, 1996 is incorporated by reference
herein).
10.36 Loan and Security Agreement dated September 13,1996 between National
Diagnostics, Inc. and DVI Business Credit Corporation relating to the Company's
line of credit. (Exhibit 10.38 to the Company's 10-QSB for September 30,
1996 is incorporated by reference herein).
10.37 Promissory Note and Business Loan Agreement dated December 23, 1996 between 64
Brandon Diagnostic Center, Ltd. and South Hillsborough Community Bank related
to the purchase of Stereotactic Mammography equipment.
</TABLE>
62
<PAGE> 63
EXHIBIT INDEX
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10.38 Equipment Lease Agreement dated January 22, 1997 between Brandon
Diagnostic Center, Ltd. ("Brandon") and Siemens Credit Corporation relating
to Brandon's Sireskop CX. 65
10.39 Professional Service Agreement, effective February 1, 1997, by and between
SunPoint Diagnostic Center, Inc. and TeleQuest, Inc. 66
10.40 Professional Service Agreement, effective February 1, 1997, by and between
National Diagnostics/Orange Park, Inc. and TeleQuest, Inc. 67
10.41 Professional Service Agreement, effective February 1, 1997, by and between
Brandon Diagnostic Center, Ltd. and TeleQuest, Inc. 68
10.42 Promissory Note and Security Agreement dated February 18, 1997 between
National Diagnostics, Inc. and DVI Business Credit Corporation relating to
the Company's installment loan. 69
20.1 National Diagnostics, Inc. Offer to Exchange dated July 6, 1995. (Exhibit
20.1 to the Company's Form 10-QSB for the period ended June 30, 1995
is incorporated by reference herein).
21 Subsidiaries of Registrant. 71
23.1 Consent of Independent Certified Public Accountants-Grant Thornton LLP 70
27 Financial Data Schedule (for SEC use only).
</TABLE>
(b) Reports on Form 8-K.
No Form 8-K was filed by the Company in 1996.
63
<PAGE> 1
EXHIBIT 10.37
PROMISSORY NOTE
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No Call Collateral Account Officer
<S> <C> <C> <C> <C> <C> <C> <C>
$150,000.00 12-23-1996 12-23-2001 133802164 RS
BORROWER: BRANDON DIAGNOSTIC CENTER, LTD. LENDER: SOUTH HILLSBOROUGH COMMUNITY BANK
747 W. BRANDON BLVD. MAIN OFFICE
BRANDON, FL 33571 6542 US HWY. 41 N
PO BOX 3830
APOLLO BEACH, FL 33572
</TABLE>
================================================================================
PRINCIPAL AMOUNT: $150,000.00 DATE OF NOTE: DECEMBER 23, 1996
PROMISE TO PAY. BRANDON DIAGNOSTIC CENTER LTD. ("BORROWER") PROMISES TO PAY TO
SOUTH HILLSBOROUGH COMMUNITY BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF
THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF ONE HUNDRED FIFTY
THOUSAND & 00/100 DOLLARS ($150,000.00), TOGETHER WITH INTEREST ON THE UNPAID
PRINCIPAL BALANCE FROM DECEMBER 23, 1996, UNTIL PAID IN FULL.
PAYMENT. BORROWER WILL PAY THIS LOAN IN ACCORDANCE WITH THE FOLLOWING PAYMENT
SCHEDULE:
6 CONSECUTIVE MONTHLY INTEREST PAYMENTS, BEGINNING JANUARY 23, 1997, WITH
INTEREST CALCULATED ON THE UNPAID PRINCIPAL BALANCES AT AN INTEREST RATE
OF 9.500% PER ANNUM; AND 54 CONSECUTIVE MONTHLY PRINCIPAL AND INTEREST
PAYMENTS OF $3,424.52 EACH, BEGINNING JULY 23, 1997, WITH INTEREST
CALCULATED ON THE UNPAID PRINCIPAL BALANCES AT AN INTEREST RATE OF 9.500%
PER ANNUM. BORROWER'S FINAL PAYMENT OF $ 3,424.52 WILL BE DUE ONDECEMBER
23, 2001. THIS ESTIMATED FINAL PAYMENT IS BASED ON THE ASSUMPTION THAT
ALL PAYMENTS WILL BE MADE EXACTLY AS SCHEDULED; THE ACTUAL FINAL PAYMENT
WILL BE FOR ALL PRINCIPAL AND ACCRUED INTEREST NOT YET PAID, TOGETHER
WITH ANY OTHER UNPAID AMOUNTS UNDER THIS NOTE.
Interest on this Note is computed on a, 30/360 simple interest basis; that is,
with the exception of odd days in. the first is calculated by applying
the ratio of the annual Interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by a month of
30 days. Interest for the odd days is calculated on the basis of the actual
days to the next full month and a 360-day year. Borrower will pay
Lender at Lender's address shown above or at such other place as
Lender may designate in writing. Unless otherwise agreed or required or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid
collection costs and late charges.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment
of this Note, Borrower understands that Lender is entitled to a MINIMUM
INTEREST CHARGE OR $10.00. Other than Borrower's obligation to pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, receive Borrower or
Borrower's obligation to continue to make payments under the payment schedule.
Rather, they will reduce the principal balance due and may result in Borrower
making fewer payments.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be
charged 5.000% OF THE REGULARLY SCHEDULED PAYMENT.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payments when due. (b) Borrower breads any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) borrower defaults under any loan, extension of
credit, security agreement, purchase or sales agreement, or any other agreement,
in favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d)
Any representation or statement make or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time make or furnished. (e) Any partner dies or any of the partners or
Borrower becomes insolvent, a receiver is appointed for any part of Borrower's
property, Borrower makes an assignment for the benefit of creditors. or any
proceeding is commenced either by Borrower or against Borrower under any
<PAGE> 2
bankruptcy or insolvency laws. (f) Any creditor tries to take any of
Borrower's property on or in which Lender has a lien or security interest.
This includes a garnishment of any of Borrower's accounts with Lender. (g) Any
of the events described in this default section occurs with respect to any
general partner of Borrower or any guarantor of this Note. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the indebtedness is impaired. (i) LENDER
IN GOOD FAITH DEEMS ITSELF INSECURE.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance of this Note, and all accrued unpaid interest immediately due, without
notice. and then Borrower will pay that amount. Upon default, including
failure to pay upon maturity, Lender, at its option, may also, if permitted
under applicable law, increase the interest rate on this Note to 18.000% per
annum, if and to the extent that the increase does not cause the interest rate
to exceed the maximum rate permitted by applicable law. Lender may hire or pay
someone else to help collect this Note is Borrower does not pay. Borrower will
pay Lender the amount of these costs and expenses, which includes, subject to
any limits under applicable law, Lender's reasonable attorney's fees and
Lender's legal expenses whether or not there is a lawsuit, including reasonable
attorneys' fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgement collection services. If not prohibited by
applicable law, Borrower also will pay any court costs, in addition to all
other sums provided by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND
ACCEPTED BY LENDER IN THE STATE OF FLORIDA. IF THERE IS A LAWSUIT, BORROWER
AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF
HILLSBOROUGH COUNTY, THE STATE OF FLORIDA. LENDER AND BORROWER HEREBY WAIVE
THE RIGHT TO ANY JURY BY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's right, title and interest in and to,
Borrower's accounts with Lender (whether checking, savings, or some other
account), including without limitation all accounts held jointly with someone
else and all accounts Borrower may open in the future, excluding however all
IRA and Keogh accounts, and all trust accounts for which the grant of a
security interest would be prohibited by law. Borrower authorizes Leader, to
the extent permitted by applicable law, to charge or setoff all sums owing on
this Note against any and all such accounts.
GARNISHMENT. Borrower consents to the issuance of a continuing writ of
garnishment or attachment against Borrower's disposable eanings, in accordance
with Section 222.11, Florida Statutes, in order to satisfy, in whole or in
Part, any money judgment entered in favor of Lender.
COLLATERAL. This Note is secured by a Security agreement for Medical
Equipment, from Brandon Diagnostic Center Ltd. to South Hillsborough Community
Bank dated December 23, 1996.
GENERAL PROVISIONS. If any Part of this Note cannot be enforced, this fact
will not affect the rest of the Note. Borrower does not agree or intend to pay,
and Lender does not agree or intend to contract for, change, collect, take,
reserve or recieve (collectively referred to herein as "charge or collect"),
any amount in the nature of interest or in the nature of a fee for this loan,
which would in any way or event (including demand, prepayment or acceleration)
cause Lender to charge or coIlect more for this loan than the maximum Lender
would be permitted to charge or collect by federal law or the law of the State
of Florida (as applicable). Any such excess interest or unauthorized fee
shall, instead of anything stated to the contrary, be applied first to reduce
the principal balance of this loan, and the principal has been paid in full,
be refunded to Borrower. Lender may delay or forgo enforcing any of its
rights or remedies under the Note, without losing them. Borrower and any other
person who signs, guaranteens or endorses this Note, to the extent allowed by
law, waives presentment, demand for payment, protest and notice of dishonor.
Upon any change in the terms of this Note, and unless otherwise expressly
stated in writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be release from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length of
time) this loan, or release any party, partner, or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the
party with whom the modificaiton is made.
<PAGE> 3
12-23-1996 PROMISSORY NOTE
LOAN NO 133802164 (CONTINUED)
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT
OF A COMPLETED COPY OF THE NOTE.
BORROWER:
BRANDON DIAGNOSTIC CENTER LTD.
BY: /S/ CURTIS L. ALLISTON
-------------------------------------------------------------
ALPHA ASSOCIATES, INC., GENERAL PARTNER, CURTIS L. ALLISTON
<PAGE> 1
EXHIBIT 10.38
SIEMENS Siemens Credit Corporation
EQUIPMENT LEASE AGREEMENT
AGREEMENT #: l00-0001156-000
---------------
<TABLE>
<S> <C> <C>
LESSOR: SEMENS CREDIT CORPORATION PAYMENT SCHEDULE
991 U.S. Highway 22, Suite 300, Bridgewater, NJ 08807-2956 LEASE TERM NUMBER OF
Administrative Offices: (IN MONTHS) LEASE PAYMENTS
5300 Broken Sound Blvd. N.W., Boca Raton, Fl 33487-3509 72 72
(800) 239-1043 LEASE PAYMENT AMOUNT: $ 1-3=0
4-72= $3,770.00 inclusive of Sales Tax
LESSEE: Brandon Diagnostic Center, LTD
---------------------------------------- ---------------------------------------------------------
PAYMENT PERIOD:
747 W Brandon Blvd. x MONTHLY QUARTERLY OTHER
---------------------------------------- --- --- ---
PURCHASE OPTION PRICE: $ 1.00
Brandon, Fl 33511
---------------------------------------- --------------------------------------------------------
ADVANCED LEASE PAYMENTS:
#(s) N/A TOTALING: $ N\A
EQUIPMENT --------------------------- -----------
LOCATION: DUE DATE(S)
Same as Above N\A
---------------------------------------- --------------------------------------------------------
EQUIPMENT DESCRIPTION
---------------------------------------- Sireskop CX as described in SMS Quote # 178920
TOTAL EQUIPMENT COST:
SUPPLIER: Siemens Medical Systems, Inc. $ 185,500.00 Equipment Cost
---------------------------------------- $ 11,155.00 Fl. St & LC Tax
-----------------------------
$ 196,655.00 Balance Due
$ 63,475.00 Interest Cost
TERMS AND CONDITIONS OF AGREEMENT
1. LEASE: Lessor hereby leases to Lessee and Lessee leases from Lessor, subject to the terms and conditions of this Equipment Lease
Agreement (herein "Lease"), the property described above (herein "Equipment"). Lessee acknowledges either that (a) Lessee has
reviewed and approved any written Supply Contract covering the Equipment purchased from the supplier identified above (herein
"Supplier"), or (b) Lessor has informed or advised Lessee, in writing, either previously or by the Lease, of the following: (i) the
identity of the Supplier, (ii) that Lessee may have rights under the Supply Contract and (iii) that Lessee may contact the Supplier
for a description of any such rights Lessee may have under the Supply Contract. LESSEE ACKNOWLEDGES THAT NEITHER LESSOR NOR THE
SUPPLIER IS AN AGENT OF THE OTHER AND NEITHER HAS AUTHORITY TO BIND THE OTHER.
(CONTINUED ON FOLLOWING PAGES)
- ------------------------------------------------------------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have duly executed the Lease as of the dates set forth below. For all purposes hereof, the
date of the Lease shall be the date of Lessor's acceptance as set forth below. Lessee acknowledges that no amendment lo the Lease
shall be effective unless in writing signed by the parties hereto.
BY EXECUTION HEREOF, THE SIGNER CERTIFIES THAT (S)HE HAS
READ THE ENTIRE LEASE, THAT LESSOR OR ITS REPRESENTATIVES
HAVE MADE NO AGREEMENTS OR REPRESENTATIONS EXCEPT AS SET
FORTH HEREIN AND THAT (S)HE IS DULY AUTHORIZED TO EXECUTE
THE LEASE ON BEHALF OF LESSEE.
ACCEPTED BY:
LESSOR: SIEMENS CREDIT CORPORATION LESSEE: Brandon Diagnostic Center, LTD
BY: /s/ Anne C. Mickens BY: /s/ Curtis L. Alliston
-------------------------- ------------------------------
NAME: Anne C. Mickens NAME: Curtis L. Alliston
-------------------------- ------------------------------
TITLE: Vice President TITLE: President
-------------------------- ------------------------------
DATE: 1/22/97 DATE: 9-24-96
-------------------------- ------------------------------
</TABLE>
<PAGE> 2
2. TERM AND LEASE PAYMENTS: The Lease shall become effective at the time of
Lessors acceptance of the Lease (by execution hereof) as its New Jersey address
set forth above, by an authorized representative of Lessor, and shall continue
in effect through the last day of the lease term specified above (herein "Lease
Term"). The Lease Term shall commence upon the earliest of (i) completion of
installation of the Equipment, (ii) first commercial use of the Equipment, or
(iii) sixty (60) days from shipment of the bulk of the Equipment if completion
of installation has been delayed due to causes beyond the reasonable control of
Lessor or Supplier; (herein "Commencement Date") and thereupon Lessee agrees to
execute and deliver to Lessor a delivery and acceptance certificate in a form
acceptable to Lessor. For said Lease Term, Lessee agrees to pay to Lessor the
number of lease payments specified above, each in the amount specified above
(herein "Lease Payments") for the payment periods specified above (herein
"Payment Periods"), including any Advance Lease Payments specified above, with
the first Lease Payment being due on the Commencement Date, and the remaining
Lease Payments being due on the same day of each consecutive Payment Period
thereafter for the duration of the Lease Term. Any Advance Lease Payments will
be applied to Lease Payment # 1, then to the remaining Lease Payments in
reverse order. Lessee agrees to pay on demand, as a late charge, 1.3% per
month limited by the maximum rate permitted by law, on all overdue payments
hereunder, whether such payments are due prior to or after a Default (as
hereinafter defined). All payments provided for herein shall be payable at the
office of Lessor set forth above, or at any other place designated by Lessor.
The Lease is a net lease and Lessee shall not be entitled to any abatement
of, reduction of, or set off against Lease Payments for any reason whatsoever.
The Lease may not be terminated or canceled for any reason whatsoever, except
as expressly provided herein. No amounts hereunder may be prepaid.
3. DISCLAIMER OF WARRANTIES; LIMITATION OF REMEDY; LIMITATION OF LIABILITY:
Lessee has selected both the Equipment and the Supplier from whom at Lessee's
request Lessor agrees to purchase the Equipment, LESSEE ACKNOWLEDGES THAT
LESSOR HAS NO SPECIAL FAMILIARITY OR EXPERTISE WITH RESPECT TO THE EQUIPMENT.
LESSEE AGREES THAT THE EQUIPMENT LEASED HEREUNDER IS LEASED "AS IS" AND IS OF A
SIZE. DESIGN AND CAPACITY SELECTED BY LESSEE AND THAT LESSEE IS SATISFIED THAT
THE SAME IS SUITABLE FOR LESSEE'S PURPOSES, AND THAT EXCEPT AS MAY OTHERWISE BE
SPECIFICALLY PROVIDED IN THE LEASE, LESSOR HAS MADE NO REPRESENTATION OR
WARRANTY AS TO ANY MATTER WHATSOEVER. LESSOR DISCLAIMS, AND LESSEE HEREBY
EXPRESSLY WAIVES AS TO LESSOR, ALL WARRANTIES WITH RESPECT TO THE EQUIPMENT
INCLUDING BUT NOT LIMITED TO ALL EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, QUALITY, CAPACITY OR
WORKMANSHIP, ALL EXPRESS OR IMPLIED WARRANTIES AGAINST PATENT INFRINGEMENTS OR
DEFECTS, WHETHER HIDDEN OR APPARENT, AND ALL EXPRESS OR IMPLIED WARRANTIES WITH
RESPECT TO COMPLIANCE OF THE EQUIPMENT WITH THE REQUIREMENTS OF ANY LAW,
REGULATION, SPECIFICATION OR CONTRACT RELATIVE THERETO. IN NO EVENT SHALL
LESSOR BE LIABLE (INCLUDING WITHOUT LIMITATION, UNDER ANY THEORY IN TORTS) FOR
ANY LOSS OF USE, REVENUE, ANTICIPATED PROFITS OR SPECIAL, INDIRECT. INCIDENTAL
OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE LEASE OR THE
USE, PERFORMANCE OR MAINTENANCE OF THE EQUIPMENT. It the Equipment is not
properly installed, does not operate as represented or warrantied by the
Supplier, manufacturer and/or service company or is unsatisfactory for any
reason, Lessee shall make any claim on account thereof solely against the
Supplier, manufacturer and/or service company and shall, nevertheless. pay
Lessor all amounts payable under the Lease and shall not set up against
Lessee's obligations any such claims as a defense, counterclaim, deduction, set
off or otherwise. For the Lease Term, for so long as no Default (as
hereinafter defined) has occurred and is continuing, Lessor assigns to Lessee
(to the extent permitted by law) any right Lessor may have against the Supplier,
manufacturer and/or service company to enforce, at Lessee's expense (if any),
any product warranties with respect to the Equipment, provided however, Lessee
shall indemnity and defend Lessor from and against all claims, expenses,
damages, losses and liabilities incurred or suffered by Lessor in connection
with any such action taken.
4. TITLE IDENTIFICATION; PERSONAL PROPERTY: Lessee acknowledges that, subject
to the provisions of Section 10 hereof, title to the Equipment shall at all
times be vested in Lessor, and no right, title or interest in the Equipment
shall pass to Lessee other than, conditioned upon Lessee's compliance with and
fulfillment of the terms and conditions of the Lease, the tight to possess and
use the Equipment for the full Lease Term. Lessee agrees not to sell, assign,
sublet, pledge, or otherwise encumber any interest in the Lease or the
Equipment and agrees to keep the same free from any lien, encumbrance, right of
distraint or any other claim which may be asserted by any third party. Lessee
shall immediately notify Lessor in writing of any tax or other liens attaching
to the Equipment. Lessor may require plates or markings to be affixed to or
placed on the Equipment indicating Lessor's interest. Lessor and Lessee hereby
confirm their intent that the Equipment always remain and be deemed personal
property even though said Equipment may hereafter become attached or affixed to
realty, Lessee shall obtain all such waivers as Lessor may reasonably require
to acknowledge Lessor's title to and assure Lessor's right to remove the
Equipment, including any landlord and mortgagee waivers.
5. PAYMENT OF TAXES; GENERAL INDEMNIFICATION: Lessee shall pay promptly to
Lessor when due, all taxes, fees and assessments, including but not limited to,
all license and registration fees, sales, use, property, gross receipts,
excise, transaction, ad valorem, privilege. intangible, stamp or other taxes or
charges, together with any fines, penalties or interest thereon, now or
hereafter imposed by any
<PAGE> 3
governmental body, upon or with respect to, any of the Equipment or the use,
possession, ownership, leasing, operation, delivery or return thereof
(excluding however, franchise taxes and any taxes based on the net income of
Lessor). Any fees, taxes or other amounts paid by Lessor upon failure of
Lessee to make such payments set forth in this Section 5 shall be payable by
Lessee to Lessor upon demand by Lessor. Lessee agrees to indemnity and hold
Lessor harmless from and against any and all claims, losses, damages,
penalties, actions, suits and liabilities (including negligence, tort and
strict liability), together with all reasonable legal costs and expenses in
connection therewith, incurred by Lessor which result from, or relate to, the
manufacture, purchase, ownership, maintenance, modification, delivery,
installation, possession, condition, use, acceptance, rejection, operation or
return of the Equipment.
6. INSTALLATION AND DELIVERY: Lessee shall provide a suitable installation
environment for the Equipment as specified in the applicable manufacturer's or
Supplier's manuals, and except as otherwise specified by the manufacturer or
Supplier, furnish all labor required for unpacking and placing each item of
Equipment in the desired location. Lessee shall also be responsible for any
delivery, rigging, destination and installation charges charged by the
manufacturer or Supplier with aspect to the Equipment.
7. OPERATION; USE; INSPECTION: For the full Lease Term, Lessee shall operate
the Equipment in accordance with all applicable manufacturer and Supplier
manuals or instructions by fully qualified and duly authorized personnel only,
in accordance with all applicable laws and regulations. The Equipment shall be
used for business purposes only and only for its normally intended purpose.
For said Lease Term, Lessee shall properly maintain the Equipment, or cause it
to be properly maintained, by a fully qualified service company, and shall
immediately notify Lessor in writing of the entity maintaining the Equipment
and of any change of such entity. Such maintenance shall be performed in
accordance with all requirements necessary to enforce all product warranty
rights. All operating and maintenance costs with aspect to the Equipment shall
be borne by Lessee. Lessee shall not: (a) use, operate or locate the Equipment
in any area excluded from coverage by any insurance required under the Lease;
(b) abandon the equipment; (c) alter the Equipment; (d) permit the Equipment
to be removed from the equipment location specified above (herein "Equipment
Location"), or any subsequent location, without the prior written consent of
Lessor, which consent shall not be unreasonably withheld; (e) without the
prior written consent of Lessor, allow the Equipment or any item of it, to be
affixed to realty in such manner as to cause the Equipment or such item to
become a fixture; or (f) without the prior written consent of Lessor, affix or
install any accessory, equipment or device on any item of Equipment if such
(i) is not readily removable, (ii) will impair the originally intended
function or use of such Equipment. All additions, repairs, parts, accessories,
equipment and devices attached or affixed to any item of Equipment which are
not readily removable, shall become the property of Lessor and part of the
Equipment for all purposes here of. Lessor shall have the right from time to
time during normal business hours to enter upon the Equipment Location or
elsewhere for the purpose of confirming the existence, condition or proper
maintenance of the Equipment.
8. RISK OF LOSS; INSURANCE: (a) Lessee agrees that it shall bear all risk of
loss, damage to or destruction of the Equipment. Lessee shall give Lessor
prompt notice of any damage to or loss of the Equipment or of any occurrence
arising from the possession, use or operation of the Equipment resulting In
death or bodily injury, or damage to property. In the event of damage to any
item(s) of Equipment, Lessee shall immediately place such item(s) in good
repair (with no abatement of Lease Payments), with the proceeds of any
insurance recovery applied to the cost of such repair. Should any item(s) of
Equipment become lost, stolen, destroyed, worn out, damaged beyond repair,
condemned, confiscated, seized or requisitioned (herein "Event of Loss"),
Lessee shall, at the option of Lessor, either (i) replace the same with like
equipment in good repair (with no abatement of Lease Payments), or (ii) pay to
Lessor on the lease payment date immediately following such Event of Loss, the
pro rata portion relating to such item(s) of the sum of (A) the remaining
Lease Payments for the balance of the Lease Term and (B) the purchase option
price specified above (herein "Purchase Option Price"), such sum discounted at
the per annum rate implicit in the Lease assuming exercise by Lessee of any
purchase option contained herein (herein "Lease Rate"), plus any other payments
due from Lessee to Lessor with respect to such item(s), whereupon the Lease
shall terminate as to such item(s) and Lessor shall adjust the remaining Lease
Payments and Purchase Option Price accordingly.
b) For the full Lease Term, Lessee, at its expense, shall maintain
comprehensive general liability insurance, and "fire and allied perils" and
"all risk" property insurance with respect to the Equipment (as primary
insurance for Lessee and Lessor), both in such amounts as Lessor shall require,
except that such property insurance shall be in an amount at least equal to the
greater of the full replacement value of the Equipment or the sum of the
remaining Lease Payments for the balance of the Lease Term, and such insurance
shall be placed with carriers acceptable to Lessor. The liability insurance
policy shall name Lessor as additional insured and the property insurance
policy shall name Lessor as loss payee to the extent its interest may appear,
and both policies shall provide that they may not be canceled or altered
without at least thirty (30) days prior written notice to Lessor. Lessee
irrevocably appoints Lessor its agent and attorney-in-fact for the purposes of
adjusting and settling any property insurance hereunder and endorsing in
Lessee's name any instruments or payments received in respect thereof. Lessee
shall furnish to Lessor within thirty (30) days of delivery of the Equipment, a
certificate of insurance that such coverage is in effect, however. Lessor
shall be under no duty either to ascertain the existence of or to examine such
insurance policies or to advise Lessee in the event that such insurance
coverage does not comply with the requirements hereof.
9. DEFAULT AND REMEDIES: (a) Any of the following shall constitute a default
by Lessee hereunder (herein "Default"); (i) failure by Lessee to pay any
amounts hereunder when due and such remains unremedied for a period of ten
(10) days from the due date; or (ii) failure by Lessee to comply with any
provisions or perform any of its obligations arising under the Lease or under
any other documents or
<PAGE> 4
agreements related hereto and such remains unremedied by Lessee for a period of
twenty (20) days: or (iii) any representations or warranties made or given by
Lessee in connection with the Lease or any other document or agreement related
hereto were false or misleading in a material way when made; or (iv) subjection
of the Equipment to levy or execution or other judicial process which is not or
cannot be removed within thirty (30) days from the subjection thereof; or the
imposition of any unauthorized lien on or transfer of the Equipment by or
through Lessee; or (v) commencement of any insolvency, bankruptcy or similar
proceedings by or against Lessee or any guarantor of any of Lessee's
obligations hereunder (herein "Guarantor"), including any assignment by Lessee
or any Guarantor for the benefit of creditors, and in the case of any such
involuntary proceedings, such is not dismissed within thirty (30) days of
institution; or the inability of Lessee to generally pay its debts as they
become due; or (vi) any act of Lessee which imperils the value of the Equipment
or the prospect of full performance of Lessee's obligations hereunder,
including but not limited to the liquidation or dissolution of Lessee or the
commencement of any acts relative thereto, or without the prior written consent
of Lessor, any sale or other disposition of all or substantially all of the
assets of Lessee, or any merger or consolidation of Lessee unless Lessee is the
surviving entity, or the cessation of business by Lessee; or (vii) a default by
Lessee under any other agreement or note with Lessor or any assignee of the
Lease; or (viii) the death or dissolution of Lessee or of any Guarantor, the
withdrawal of any partner of Lessee if Lessee is a partnership, or the
inability of Lessee or of any Guarantor hereunder to perform any of the
obligations contained herein or in any applicable guaranty.
(b) Upon any Default, Lessor may exercise any one or more of the following
remedies (which remedies shall be cumulative to the extent permitted by law):
(i) terminate the Lease; (ii) declare all remaining Lease Payments for the
balance of the Lease Term discounted at the Lease Rate, plus all other amounts
due from Lessee hereunder immediately due and payable in full, whereupon such
shall become immediately due and payable; (iii) secure peaceable repossession
and removal of the Equipment by Lessor or its agent without judicial process;
(iv) demand and Lessee shall return the Equipment to Lessor in accordance with
Section 11 hereof; (v) sell, lease or otherwise dispose of the Equipment at
public or private sale without advertisement or notice except that required by
law, upon such terms and at such place as lessor may deem advisable and Lessor
may be the purchaser at any such sale; (vi) demand and Lessee shall pay all
expenses in connection with the Equipment elating to its retaking,
refurbishing, selling or the like; (vii) exercise any other right or remedy
which may be available to it under the Uniform Commercial Code or any other
applicable law. In the event that Lessor disposes of the Equipment pursuant to
this Section 9(b), Lessee shall be liable for any deficiency remaining after
such disposition and application of the resulting net proceeds, less the
Purchase Option Price discounted at the Lease Rate, to Lessee's obligations
hereunder in the order of application as Lessor shall elect.
10. PURCHASE OPTION: Provided no Default has occurred and is continuing and
provided the Lease shall not have previously terminated, Lessee shall have the
option, exercisable by written notice to lessor received by Lessor at least
ninety (90) but not more than one hundred eighty (180) days before the
expiration of the Lease Term, to purchase on the day following the last day of
such Lease Term (herein "Purchase Date"), all but not less than all of the
Equipment subject to the Lease for he Purchase Option Price. Provided Lessee
has exercised such option, Lessee shall pay to Lessor on the Purchase Date the
aforementioned Purchase Option Price in cash, together with all sales and other
taxes applicable to the transfer of the Equipment and any other amounts as may
then be due and owing hereunder, whereupon Lessor shall transfer its interest
in the equipment to Lessee without recourse or warranty, on an as-is, where-is
basis. In the event that Lessee falls to exercise such purchase option, Lessee
shall (upon termination of the Lease) return the Equipment to Lessor on demand,
in accordance with the provisions of Section 11 hereof.
11. RETURN OF EQUIPMENT: Upon demand of Lessor pursuant to Section 9 or 10
hereof, Lessee, at its own risk and expense, shall immediately return the
equipment to Lessor, packed for shipment in accordance with manufacturer's
specifications, in good working order and eligible for manufacturer's
maintenance, if available, freight prepaid and insured, to such location within
the continental United States as Lessor shall designate.
12. LESSEE REPRESENTATIONS AND ASSURANCES: Lessee represents; that it is duly
organized and validly existing under the laws of its state of organization and
by consummation of this transaction, Lessee is not in violation of any
governmental statute or regulation, nor will consummation of this transaction
cause any reach, default or violation of the organizational or charter
documents or any judgment, decree or agreement, all as may apply to Lessee:
that this transaction was duly authorized by all appropriate action by Lessee;
and the Lease is enforceable in accordance with its terms. Lessee shall
promptly execute and deliver to Lessor such further documents and take such
further action as Lessor may reasonably request in order to more effectively
carry out the intent and purpose of the Lease. Lessee shall provide Lessor with
audited and other financial statements and such other information as Lessor
shall reasonably request from time to time.
13. NOTICES; CHANGES; SECURITY: Notices, requests or other communications
required hereunder to be sent to either party shall be in writing and shall be
(a) by United States first class mail, postage prepaid, and addressed to the
other party at the address specified above (or to such other address as such
party shall have designated by proper notice) or (b) by personal delivery.
Lessee consents to service of process by certified mail at its address above
(or to such other address as cases shall have designated by proper notice) in
connection with any legal action brought by Lessor. Lessee authorized Lessor
to fill in descriptive material herein (including serial numbers) and to
correct any patent errors hereunder, In the event the Lease is deemed to be
intended as security, Lessor shall have, to secure all payments and all other
obligations of Lessee to Lessor hereunder, a security interest in the Equipment
together with all accessions. attachments, replacements,
<PAGE> 5
substitutions, modifications and additions thereto, now or here after acquired,
and all proceeds thereof (including insurance proceeds). Lessee shall execute
and authorizes Lessor to file with such authorities and at such locations as
Lessor may deem appropriate, Uniform commercial Code financing statements
relating to the Equipment and/or the Lease, and Lessee agrees to reimburse
Lessor upon demand for all costs incurred relative thereto. In addition,
Lessee hereby irrevocably appoints Lessor its agent and attorney-in-fact to
execute in the name of Lessee and file any Uniform Commercial Code financing
statements or security agreements with respect to the Equipment in any place
Lessor deems necessary. Lessee also agrees that an original or a photocopy of
the Lease (including any addenda, attachments and amendments hereto) may be
filed by Lessor as a Uniform Commercial Code financing statement. Lessee
agrees lo immediately notify Lessor in writing of any change in Lessee's name
or address, identity, corporate structure, social security or taxpayer
identification number as applicable. or discontinuance of any of its place(s)
of business.
14. ASSIGNMENT BY LESSOR: LESSOR MAY ASSIGN OR TRANSFER ALL OR ANY INTEREST OF
LESSOR IN THE LEASE OR THE EQUIPMENT WITHOUT NOTICE TO LESSEE. UPON NOTICE OF
SUCH ASSIGNMENT LESSEE AGREES TO PAY DIRECTLY TO ASSIGNEE WITHOUT ABATEMENT,
DEDUCTION OR SET OFF ALL AMOUNTS WHICH BECOME DUE HEREUNDER AND FURTHER AGREES
THAT IT WILL NOT ASSERT AGAINST ASSIGNEE ANY DEFENSE, COUNTERCLAIM OR SET OFF
FOR ANY REASON WHATSOEVER IN ANY ACTION FOR PAYMENT OR POSSESSION BROUGHT BY
ASSIGNEE. Upon any such assignment, such assignee (herein "Assignee") shall
have and be entitled to any and all rights and remedies of Lessor hereunder,
all references in the Lease to Lessor shall include Assignee except that
Assignee shall not be chargeable with any obligations or liabilities of Lessor
hereunder. Lessee acknowledges that any assignment or transfer by Lessor shall
not materially change Lessee's duties or obligations under the Lease nor
materially increase the burdens or risks imposed on Lessee. Lessee shall (it
requested by Lessor) acknowledge in writing any assignments (including any
material terms of the Lease) in a form supplied by Lessor.
15. MISCELLANEOUS: THE LEASE CONTAINS THE COMPLETE AGREEMENT OF THE PARTIES
WITH RESPECT TO ITS SUBJECT MATTER AND SUPERSEDES AND REPLACES ANY PREVIOUSLY
MADE PROPOSALS, REPRESENTATIONS, WARRANTIES OR AGREEMENTS WITH RESPECT THERETO.
LESSEE SHALL NOT ASSIGN OR IN ANY WAY DISPOSE OF ALL OR ANY PART OF ITS RIGHTS
OR OBLIGATIONS UNDER THE LEASE OR ENTER INTO ANY SUBLEASE OF ALL OR ANY PART OF
THE EQUIPMENT WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. The Lease shall be
binding upon and insure to the benefit of the parties hereto, their legal
representatives, permitted successors and assigns. THE PARTIES HERETO WAIVE
ALL RIGHTS TO A JURY TRIAL IN ANY LITIGATION ARISING FROM OR RELATED IN ANY WAY
TO THE LEASE, OR THE TRANSACTION CONTEMPLATED HEREBY. No waiver hereunder
shall be effective unless in writing, signed by the party to be charged. No
failure to exercise, no delay in exercising, and no single or partial exercise
on the part of Lessor of any right, remedy, or power hereunder. shall operate
as a waiver thereof or preclude Lessor from exercising any other right, remedy
or power hereunder. Any provision of the Lease which is unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability, without invalidating the remaining
provisions hereof. No action, regardless of form, arising out of the Lease may
be brought by Lessee more than two (2) years after the cause of action has
accrued. The representations, warranties. obligations, and indemnities of
Lessee under the Lease shall survive the termination of the Lease to the extent
required for their full observance and performance. The obligations of each
co-maker (if any) of the Lease shall be primary, joint and several. In the
event that Lessee fails to meet any of its obligations hereunder, Lessor may at
its option satisfy such obligation and Lessee shall reimburse Lessor on demand
therefor. In the event that legal or other action is required to enforce
Lessor's rights under the Lease (including the exercise of remedies under
action 9 hereof), Lessee agrees to reimburse Lessor on demand for its
reasonable attorneys' fees and its other related costs and expenses. In
addition, notwithstanding any applicable state laws to the contrary, Lessee
agrees to reimburse Lessor for all reasonable attorneys' fees incurred by it
incident to any action proceeding involving the Lessee brought pursuant to the
Bankruptcy Code, as amended, which are allowable under Section 506(b) thereof.
The captions in the Lease are for convenience only and shall not define or
limit any of the terms hereof. THE LEASE SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY WITHOUT GIVING EFFECT TO
THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
ELA.MFPO 6/96
<PAGE> 1
EXHIBIT 10.39
PROFESSIONAL SERVICES AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of the 24
day of January , 1997, to be effective on February 1, 1997 (the
"Effective Date") by and between TELEQUEST, INC. ("TeleQuest"), a Delaware
corporation and SUNPOINT DIAGNOSTIC CENTER, a Florida corporation("Sunpoint."),
(with TeleQuest and Sunpoint Diagnostic Center being also referred to
singularly as "Party" and collectively as "Parties").
W I T N E S S E T H:
WHEREAS, Sunpoint is in the business of providing medical imaging
services in Ruskin, Florida (the "Facility"), which require both on-site and
remote diagnostic radiology services,
WHEREAS, TeleQuest is in the business of arranging for the provision
of on-site and remote diagnostic radiology services through independent
contractor relationships with professional corporations and radiology
departments of academic medical institutions; and
WHEREAS, TeleQuest agrees to arrange for the provision of such
services to Sunpoint upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, and for other good and valuable consideration,
the adequacy and receipt of which is hereby acknowledged, TeleQuest and
Sunpoint agree as follows:
1. TELEQUEST'S RESPONSIBILITIES. TeleQuest hereby agrees to
provide services as hereinafter set forth (the "TeleQuest Services"):
(a) PROVISION OF RADIOLOGISTS. TeleQuest agrees to
arrange for the provision of on-site and remote diagnostic radiology
services ("Radiology Services") as follows:
(1) TeleQuest agrees to arrange for the provision
of on-site Radiology Services to Sunpoint through two (2) radiologists
who will be licensed to practice medicine in the State of Florida
("TeleQuest Radiologists"), and who will be employees of TeleQuest
Associates, P.C., a Pennsylvania professional corporation qualified to
do business in the State of Florida ("TeleQuest PC"). The TeleQuest
Radiologist will be physically present at Sunpoint during the days and
times mutually agreed upon by TeleQuest and Sunpoint in writing.
(2) TeleQuest further agrees to arrange for the
provision of remote Radiology Services to Sunpoint, by Radiologists
who are either board certified or eligible for board certification as
radiologists and who are currently licensed to practice medicine
("Radiologist or Radiologists") at one or more academic medical
institutions ("TeleQuest Affiliates").
(b) COOPERATION WITH SUNPOINT. TeleQuest agrees, and
shall use its best efforts to cause TeleQuest PC, the TeleQuest
Radiologists, and all Radiologists and TeleQuest Affiliates to agree,
to reasonably cooperate with Sunpoint in its efforts to obtain
accreditation for the Facility by the Joint Commission on the
Accreditation of Healthcare Organizations ("JCAHO"), and to reasonably
assist in the quality management activities of the Facility.
<PAGE> 2
(c) TRAINING PROGRAMS. TeleQuest shall, if requested by
Sunpoint and agreed to by TeleQuest, provide training to the
radiological staff by or contracting with the Facility. Such
training shall be provided either onsite or at a TeleQuest Affiliate,
at TeleQuest's sole discretion. Any cost incurred by TeleQuest in
providing such training shall be paid by Sunpoint promptly upon
receipt of invoice therefore, unless agreed by the Parties.
(d) EQUIPMENT. During the term of this Agreement,
TeleQuest shall provide and maintain teleradiolgy equipment necessary
(in TeleQuest's sole judgement) for the provision of remote Radiology
Services pursuant to this Agreement, which is described on Exhibit
"A" attached hereto and made a part hereof, at TeleQuest's expense.
Such Equipment is and shall remain the sole property of TeleQuest,
unless such equipment is transferred to Sunpoint pursuant to the
provisions of Section 10 of this Agreement.
(e) COSTS OF SERVIES. TeleQuest shall pay all
telecommunication costs for transmission of teleradiology studies.
(f) COMMUNITY OUTREACH. TeleQuest and Sunpoint shall
work cooperatively to develop communtiy awareness of the radiology
services offered by Sunpoint and TeleQuest in the Facility's service
areas. Additionally, TeleQuest will use its best efforts to make
members of TeleQuest Affiliates' medical staff available to
participate in programs in the Facility's service areas which will
inform physicians of the services provided by Sunpoint and TeleQuest.
The cost of this community outreach shall be divided among the
Parties hereto as they mutually agree.
2. SUNPOINT'S RESPONSIBILITIES. Sunpoint hereby agrees to the
following:
(a) FACILITIES. Sunpoint shall furnish such equipment
and apparatus for the Facility as is necessary, in the sole and
absolute discretion of Sunpoint, for the operation of the Facility and
shall keep same in good repair. All costs for the operation of the
Facility (except those specifically assumed by TeleQuest herein) shall
be the responsibility of Sunpoint. Sunpoint shall obtain and maintain
all necessary licenses and permits to operate the Facility, and shall
at all times operate the Facility in compliance with all applicable
laws and regulation.
(b) STAFFING. Sunpoint shall employ, engage and
compensate all personnel (except for the TeleQuest Radiologist) which
may be required for the operation of the Facility, the number of which
shall be determined by Sunpoint.
(c) COST OF SERVICES. Sunpoint shall be responsible for
all overnight mail costs incurred in transmitting data, films, and
related information between the parties pursuant to this Agreement.
Sunpoint will be responsible for all costs of transcription services.
3. INDEPENDENT CONTRACTOR RELATIONSHIP. Notwithstanding any
provision herein to the contrary, the Parties agree that TeleQuest, TeleQuest
PC, the TeleQuest Radiologists, the Radiologists and the TeleQuest Affilitate,
are and shall be retained as independent contractors with respect to the
services, including the Radiology Services, performed in connection with this
Agreement. Except as otherwise expresssly provided in this Agreement. Except
as otherwise provided in this Agreement, including Section 1 above, Sunpoint
shall not have the right to control the professional judgement of the TeleQuest
Radiologists or the Radiologists or the manner or method by which the TeleQuest
Radiologist or the Radiologists shall provide Radiology Services under this
Agreement.
<PAGE> 3
4. EXPENSES. Except as specified in Section 1 or 2, Sunpoint
shall not be responsible for any expenses incurred by TeleQuest, TeleQuest PC,
or any Radiological or TeleQuest Affiliates in the performance of Radiology
Services under this Agreement.
5. COMPENSATION. Sunpoint shall pay to TeleQuest, on a monthly
basis, fourteen percent (14%) of gross collected revenues received by the
center for services performed, minus refunds, and minus fees for
echocardiograms and nuclear medicine cardiology studies for which Radiologists
does not proved reading and interpretation, or any other diagnostic studies or
procedures added to the array of radiological services offered by the Center
which Radiologist does not provide reading and interpretation. Commencing
ninety days after the effective date, in any give month thereafter during the
term of this agreement if fourteen percent (14%) of gross collected revenues
are not at least $10,000 Sunpoint will pay the difference to the extent that a
minimum payment of $10,000 is made to TeleQuest. TeleQuest and Sunpoint shall
review collected revenues on a quarterly basis.
6. CHARGES AND BILLING. The Parties shall acknowledge and agree
that Sunpoint is the owner of, and is responsible for the billing and
collection for all fees due to the Center for services performed at the Center,
including but not limited to the services performed by TeleQuest, TeleQuest PC,
TeleQuest Radiologists, the Radiologist and TeleQuest Affiliates. All patients
who receive medical services at the Center shall be billed on a "global" basis
fee which includes the fee for both Radiologist's medical services and for the
services rendered by the Center.
7. TERM; EXCLUSIVITY.
(a) TERM. This Agreement shall commence on the Effective
Date and shall continue in force through the third anniversary of the
Effective Date unless terminated in accordance with Section 10 hereof.
In the event that Sunpoint is sold to another party ("Successor")
during the term of this agreement, this Agreement shall continue in
full force and effect. During the term of the Agreement, TeleQuest
shall not enter into any other agreements to provide Radiology
Services within a fifteen mile radius of the Facility.
(b) EXCLUSIVITY. During the term of this Agreement, the
Facility shall not enter into any other contractual agreements for
the provision of Radiology Services, and TeleQuest shall have the
exclusive right to provide TeleQuest Services, and to arrange for the
provision of Radiology Services, to the Facility.
8. INDEMNIFICAITON. TeleQuest agrees to indemnify, defend and
hold Sunpoint and its officers, trustees, employees and agents harmless from
any and all claims, actions, liabilities, loss, damages for personal injury or
property damages, and expenses (including reasonable attorney's fees), which
are or may be brought against Sunpoint: (i) which arise or may arise as a
result of any conduct, acts or omissions of TeleQuest PC, the TeleQuest
Radiologists, or any Radiologist, any TeleQuest Affiliate, of any other person
providing services on behalf of TeleQuest pursuant to or in breach of this
Agreement; and (ii) for any criminal conduct or intentional wrongdoing by
TeleQuest, TeleQuest PC, the TeleQuest Radiologists, any Radiologist, any
TeleQuest Affiliate, or any other person providing services or any TeleQuest
Affiliate pursuant to this Agreement. Sunpoint agrees to indemnify, defend and
hold TeleQuest, TeleQuest PC, the TeleQuest Radiologists, the Radiologists, the
TeleQuest Affiliates, and their respective officers, trustees, directors,
employees, agents (the "Indemnified Parties") harmless from and against any and
all claims, actions, liabilities, losses, or damages for personal injury or
property damaged and expenses (including reasonable attorney's fees), which are
or may be brought against the Indemnified Parties: (i) which arise or may
arise as a direct result of any conduct, acts, or ommisions of Sunpoint or any
of its employees, agents,
<PAGE> 4
director, or contractors, or any other person providing services pursuant to
or in breach of the Agreement; and (ii) for any criminal conduct or intentional
wrongdoing by Sunpoint or any of its employees, agents, directors, or
contractors, or any other person providing services pursuant to this
agreement.
9. LIABILITY INSURANCE. TeleQuest shall require in its
Participation Agreements that TeleQuest PC and each TeleQuest Affiliate and
Radiologist shall obtain, and keep in force without cost to Sunpoint, a policy
of professional liability (malpractice) insurance with a minimum coverage of
$1,000,000 for each claim and $3,000,000 annually for the aggregate of all
claims. Such insurance shall include coverage for "nose" and "tail" insurance
(if a claims-made policy) and shall be kept in full force and effect
notwithstanding a termination of this Agreement for any and all applicable
periods of limitation, so as to therafter provide coverage for claims and
lawsuits arising out of services performed during the term hereof.
10. TERMINATION OF AGREEMENT. This Agreement may be terminated
by either Party in accordance with the following provisions:
(a) TERMINATION BY MUTUAL AGREEMENT. At any time by the
mutual written agreement of Sunpoint (or the Successor) and TeleQuest.
(b) TERMINATION FOR BREACH . In the event of a material
breach by a Party or the Successor, the non-breaching Party may, at
any time after having given thirty (30) days written notice breach to
the other Party and the breaching party having failed to cure such
alleged breach within such thiry (30) day period, terminate this
Agreement without any further written notice of termination.
(c) TERMINATION WITHOUT CAUSE. This Agreement may be
terminated by either Party (or the Successor) without cause
following the first anniversary of the Effective Date, provided that
the terminating party has first given written notice at least sixty
(60) days in advance of the proposed termination date. If the
Agreement is terminated by Sunpoint or the Successor, Sunpoint or the
Successor will pay TeleQuest (i) $20,000 if terminated prior to the
second anniversary of the agreement, and (ii) $10,000 if terminated
prior to the third anniversary of the agreement, in reimbursement of
expenses incurred by TeleQuest to buy-out the professional services
contract of Dr. Robert Marshall.
Should Sunpoint or the Successor terminate this Agreement
prior to the third Anniversary of the Effective Date for any reason
other than due to a material breach by TeleQuest, Sunpoint or the
Successor shall reimburse TeleQuest for its costs to deinstall the
equipment listed on "Exhibit A", which may include (i) the costs of
terminating any rental and service contracts existing on the equipment
and (ii) the fair market value of any equipment owned by TeleQuest,
where upon TeleQuest shall transfer to Sunpoint or the Successor the
associated equipment.
(d) TERMINATION COMPENSAITON. Upon contract termination
for whatever reason and in addition to any payments as described in
paragraphs (10a)(10b) and (10c) the Center agrees to pay TeleQuest for
any readings which TeleQuest performed under the contract in
accordance with the terms set forth in paragaph 5 of this agreement.
Payments will be paid monthly on fourteen (14%) of collections for
those readings performed by TeleQuest only. These payments will
continue based on collections for a period of one year from date of
contract termination. Telequest will not be entitled to any payment
therafter for future collections. Upon contract termination the
Center will not be obligated to pay any minimum fee per month.
<PAGE> 5
11. ACCESS TO RECORDS. Upon reasonable notice and during normal
business hours, each Party may inspect the books and records of the other which
are necessary to document compliance with the terms of this Agreement, subject
to the provisions of Section 12 below. The Parties agree that any data,
slides, films, radiological materials, or other patient information received by
the TeleQuest Affiliate (whether in tangible of electronic form) shall be and
remain the property of Sunpoint unless otherwise agreed by the Parties. The
Parties agree to provide each other reasonable access to their records to the
extent any claim or cause of action is brought against a Party arising out of
or related to Radiology Services or TeleQuest Services furnished or alleged
to have been furnished pursuant to this Agreement, subject to any applicable
laws regarding confidentiality of medical records. Sunpoint agrees to maintain
its patient medical records in accordance with all state and federal statutes
and regulations and any accrediting body standards applicable to Sunpoint and
the Facility, but in no event for less than the the statute of limitations
applicable in the state of Florida for medical malpractice as applicable to
each patient.
12. CONFIDENTIALITY. For purposes of this Agreement, and subject
to subparagraph 12(b) below, the term "Confidential Information" means any
confidential or propriety information of TeleQuest or Sunpoint, including,
without limitation, this Agreement, including any term, condition or exhibit
thereof, patient records, symbols, trademarks, service marks, designs,
management information systems, utilization procedures, and protocols, forms
and claims processing techniques, utilization review and quality assurance
mechanisms and data, agreements with managed care organizations and purchases
of services, education programs related to the activities of either Party, any
information related to either Party's financial affairs, business and marketing
plans and strategies, contract negotiations with managed care organizations,
fee schedules, and any other information that either Party considers to be a
trade secret or confidential information.
(a) PROTECTION OF CONFIDENTIAL INFORMATION. All
Confidential Information received by either Party ( the "Receiving
Party") pursuant to this Agreement shall be restricted in accordance
herewith, and Receiving Party agrees to use such Confidential
Information solely for the limited purpose described in this
Agreement. Receiving Party agrees that any Confidential Information
received from the other Party ( the "Disclosing Party") is the
exclusive property of the Disclosing Party , and Receiving Party shall
not have any ownership interest therein. Receiving Party agrees not
to use, employ, or in any manner or form disclose, publish, or
otherwise make available in any manner in whole or in part, any
Confidential Information of the Disclosing Party. Receiving Party
shall not have the right to print or copy, in whole or in part, any
Confidential Information of the Disclosing Party, or any documentation
pertaining thereto. Receiving Party agrees to take appropriate action,
whether by instruction, agreement, or otherwise to ensure the
protection, confidentiality, and security of the Confidential
Information of the Disclosing Party. Receiving Party agrees to use
the same care with the Disclosing Party's Confidential Information
which it uses for its own proprietary and trade secret information.
All notes, data, reference materials, sketches, drawings, memoranda,
documentation, and records relating to any of its Confidential
Information shall belong exclusively to Disclosing Party, and
Receiving Party agrees to turn over to Disclosing Party all such
Confidential Information and copies thereof in its possession at the
request of Disclosing Party.
(b) EXCEPTION TO CONFIDENTIALITY. The confidentiality
restrictions of this Agreement shall not apply to any document or
information if such document or information (i) was known to Receiving
Party, as evidence by receiving Party's written records, prior to the
receipt of such document or information from Disclosing Party, (ii)
was publicly available at the time of the disclosure of such document
to Receiving Party or subsequently became publicly available through
no fault of receiving Party, (iii) was approved for public disclosure
by the written authorization of Disclosing Party, (iv) was or became
available to receiving Party or its agent from a nonconfidential
<PAGE> 6
source, or (v) is required to be disclosed by law, any state agency
third party reimbursement agencies or professional organizations, or
pursuant to subpoena or proper court order.
13. RENEGOTIATION. If TeleQuest's counsel determines that the
ability of the Parties hereto to fulfill their respective obligations
hereunder, or payment by Sunpoint, are (or are likely to be) adversely
impacted by the requirement of any federal, state, or local law, rule, or
regulation, or published official interpretation of any of the foregoing, as
applied to this Agreement, then, at the option of TeleQuest, the Parties shall
negotiate to amend this Agreement in a manner which will, if possible, avoid
such adverse impact, while maintaining the essential benefits intended to be
afforded hereby. If this Agreement is not so amended prior to the effective
date of such requirement or within thirty (30) days after TeleQuest's notice
under this section, whichever shall first occur, then this Agreement shall
terminate, at the option of TeleQuest, as of such date.
14. MISCELLANEOUS
(a) GOVERNING LAW. This agreement shall be constructed,
enforced, and governed in accordance with the laws of the State of
Florida.
(b) COSTS AND ATTORNEY'S FEES. Except as otherwise
provided in this Agreement in the event that suit is brought in any
court to determine or enforce rights or obligations or damages under
this Agreement, or any arbitration proceeding occurs, the parties
agree that the court or arbitrator shall award reasonable costs and
attorney's fees to the prevailing party.
(c) SEVERABILITY CLAUSE. In the event any term or
provision of this Agreement is found to be unenforceable or void, in
whole or in part, as drafted, then the offending term or provision
shall be constructed as valid and enforceable to the maximum extent
permitted by law, and the balance of this Agreement shall remain in
full force and effect, unless such a construction would materially
affect the rights or obligations of either party hereto.
(d) AMENDMENTS; ASSIGNMENT. Amendments may be made to
this Agreement but only after the mutual approval in writing by
Sunpoint and TeleQuest. This Agreement shall be assignable upon
mutual agreement of the Parties.
(e) PARAGRAPH HEADINGS. The Paragraph headings
contained in this Agreement are for convenience only and shall in no
manner be construed as a part of this Agreement.
(e) ENTIRE AGREEMENT. This Agreement supersedes all
prior discussions and agreements between Sunpoint, or any of its
managers, directors, employees, or agents, and TeleQuest or any of its
officers, directors, employees, or agents, with respect to all matters
contained herein. Any representation, inducement, promise, or
agreement, whether oral or written, between Sunpoint, or and of its
officers, directors, employees, or agents, and TeleQuest, or any of
its officers, directors, employees, or agents herein shall be of no
force or effect.
(g) NOTICES. All notices, payments, and other
communications required or permitted under the Agreement shall be
deemed given and received if delivered in person or by first-class
<PAGE> 7
United States Mail, postage prepaid and either registered or
certified, and addressed:
TeleQuest: 3600 Market Street, Suite 370
Philadelphia, PA 19104
Attn: President
Sunpoint: Sunpoint Diagnostic Center
3002 S.R. 674
Ruskin, FL 33570
Attn: President
(h) PRACTICE OF MEDICINE. The Parties understand,
acknowledge, and agree that in furnishing the TeleQuest Services,
TeleQuest is not engaged in the practice of medicine and is not
undertaking to render any medical services in this Agreement, any
provision hereof to the contrary notwithstanding.
(I) COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original,
and all of which together shall constitute one and the same
instrument.
{remainder of page intentionally left blank}
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
TELEQUEST, INC.
a Delaware corporation
By: /s/ William Straub
----------------------------
Its Authorized Officer
SUNPOINT DIAGNOSTIC CENTER
a Florida corporation
By: /s/ Curtis L. Alliston
----------------------------
Its Authorized Officer
<PAGE> 9
EXHIBIT "A"
TO PROFESSIONAL SERVICES AGREEMENT
EQUIPMENT
EQUIPMENT FOR SUNPOINT DIAGNOSTIC CENTER
1 Lumiscan 75/150 Film Digitizer and Film Digitizer Workstations
1 Frame Grabbers plus Workstation to connect 2 CTs and 1 MR
2 Computer terminal for radiological Information System Access
Cabling for Local Area Network
Wide Area Network Installation
1 Laser Printer and Network Connections
<PAGE> 1
EXHIBIT 10.40
PROFESSIONAL SERVICES AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of the 29 day
of January, 1997, to be effective on February 1, 1997 (the "Effective Date") by
and between TELEQUEST, INC. ("TeleQuest"), a Delaware corporation and ORANGE
PARK DIAGNOSTIC CENTER, a Florida corporation("Orange Park."), (with TeleQuest
and Orange Park Diagnostic Center being also referred to singularly as "Party"
and collectively as "Parties").
W I T N E S S E T H:
WHEREAS, Orange Park is in the business of providing medical imaging
services in Orange Park, Florida (the "Facility"), which require both on-site
and remote diagnostic radiology services,
WHEREAS, TeleQuest is in the business of arranging for the provision
of on-site and remote diagnostic radiology services through independent
contractor relationships with professional corporations and radiology
departments of academic medical institutions; and
WHEREAS, TeleQuest agrees to arrange for the provision of such
services to Orange Park upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, and for other good and valuable consideration,
the adequacy and receipt of which is hereby acknowledged, TeleQuest and Orange
Park agree as follows:
1. TELEQUEST'S RESPONSIBILITIES. TeleQuest hereby agrees to
provide services as hereinafter set forth (the "TeleQuest Services"):
(A) PROVISION OF RADIOLOGISTS. TeleQuest agrees to
arrange for the provision of on-site and remote diagnostic radiology
services ("Radiology Services") as follows:
(1) TeleQuest agrees to arrange for the provision
of on-site Radiology Services to Orange Park through two (2)
radiologists who will be licensed to practice medicine in the State of
Florida ("TeleQuest Radiologists"), and who will be employees of
TeleQuest Associates, P.C., a Pennsylvania professional corporation
qualified to do business in the State of Florida ("TeleQuest PC").
The TeleQuest Radiologist will be physically present at Orange Park
during the days and times mutually agreed upon by TeleQuest and Orange
Park in writing.
(2) TeleQuest further agrees to arrange for the
provision of remote Radiology Services to Orange Park, by Radiologists
who are either board certified or eligible for board certification as
radiologists and who are currently licensed to practice medicine
("Radiologist or Radiologists") at one or more academic medical
institutions ("TeleQuest Affiliates").
(B) COOPERATION WITH ORANGE PARK. TeleQuest agrees, and shall use
its best efforts to cause TeleQuest PC, the TeleQuest Radiologists,
and all Radiologists and TeleQuest Affiliates to agree, to reasonably
cooperate with Orange Park in its efforts to obtain accreditation for
the Facility by the Joint Commission on the Accreditation of
Healthcare Organizations ("JCAHO"), and to reasonably assist in the
quality management activities of the Facility.
<PAGE> 2
(C) TRAINING PROGRAMS. TeleQuest shall, if requested by
Orange Park and agreed to by TeleQuest, provide training to the
radiological staff by or contracting with the Facility. Such
training shall be provided either onsite or at a TeleQuest Affiliate,
at TeleQuest's sole discretion. Any cost incurred by TeleQuest in
providing such training shall be paid by Orange Park promptly upon
receipt of invoice therefore, unless agreed by the Parties.
(D) EQUIPMENT. During the term of this Agreement,
TeleQuest shall provide and maintain teleradiolgy equipment necessary
(in TeleQuest's sole judgement) for the provision of remote Radiology
Services pursuant to this Agreement, which is described on Exhibit "A"
attached hereto and made a part hereof, at TeleQuest's expense. Such
Equipment is and shall remain the sole property of TeleQuest, unless
such equipment is transferred to Orange Park pursuant to the
provisions of Section 10 of this Agreement.
(E) COSTS OF SERVIES. TeleQuest shall pay all
telecommunication costs for transmission of teleradiology studies.
(F) COMMUNITY OUTREACH. TeleQuest and Orange Park shall
work cooperatively to develop communtiy awareness of the radiology
services offered by Orange Park and TeleQuest in the Facility's
service areas. Additionally, TeleQuest will use its best efforts to
make members of TeleQuest Affiliates' medical staff available to
participate in programs in the Facility's service areas which will
inform physicians of the services provided by Orange Park and
TeleQuest. The cost of this community outreach shall be divided
among the Parties hereto as they mutually agree.
2. ORANGE PARK'S RESPONSIBILITIES. Orange Park hereby agrees to
the following:
(A) FACILITIES. Orange Park shall furnish such equipment
and apparatus for the Facility as is necessary, in the sole and
absolute discretion of Orange Park, for the operation of the Facility
and shall keep same in good repair. All costs for the operation of
the Facility(except those specifically assumed by TeleQuest herein)
shall be the responsibility of Orange Park. Orange Park shall obtain
and maintain all necessary licenses and permits to operate the
Facility, and shall at all times operate the Facility in compliance
with all applicable laws and regulation.
(B) STAFFING. Orange Park shall employ, engage and
compensate all personnel (except for the TeleQuest Radiologist) which
may be required for the operation of the Facility, the number of which
shall be determined by Orange Park.
(C) COST OF SERVICES. Orange Park shall be responsible
for all overnight mail costs incurred in transmitting data, films,
and related information between the parties pursuant to this
Agreement. Orange Park will be responsible for all costs of
transcription services.
3. INDEPENDENT CONTRACTOR RELATIONSHIP. Notwithstanding any
provision herein to the contrary, the Parties agree that TeleQuest, TeleQuest
PC, the TeleQuest Radiologists, the Radiologists and the TeleQuest Affilitate,
are and shall be retained as independent contractors with respect to the
services, including the Radiology Services, performed in connection with this
Agreement. Except as otherwise expresssly provided in this Agreement. Except
as otherwise provided in this Agreement, including Section 1 above, Orange Park
shall not have the right to control the professional judgement of the TeleQuest
Radiologists or the Radiologists or the manner or method by which the TeleQuest
Radiologist or the Radiologists shall provide Radiology Services under this
Agreement.
<PAGE> 3
4. EXPENSES. Except as specified in Section 1 or 2, Orange Park
shall not be responsible for any expenses incurred by TeleQuest, TeleQuest PC,
or any Radiological or TeleQuest Affiliates in the performance of Radiology
Services under this Agreement.
5. COMPENSATION. Orange Park shall pay to TeleQuest, on a
monthly basis, fourteen percent (14%) of gross collected revenues received by
the center for services performed, minus refunds, and minus fees for
echocardiograms and nuclear medicine cardiology studies for which Radiologists
does not proved reading and interpretation, or any other diagnostic studies or
procedures added to the array of radiological services offered by the Center
which Radiologist does not provide reading and interpretation. Commencing
ninety days after the effective date, in any give month thereafter during the
term of this agreement if fourteen percent (14%) of gross collected revenues
are not at least $3,000 Orange Park will pay the difference to the extent that
a minimum payment of $3,000 is made to TeleQuest. TeleQuest and Orange Park
shall review collected revenues on a quarterly basis.
6. CHARGES AND BILLING. The Parties shall acknowledge and agree
that Orange Park is the owner of, and is responsible for the billing and
collection for all fees due to the Center for services performed at the Center,
including but not limited to the services performed by TeleQuest, TeleQuest PC,
TeleQuest Radiologists, the Radiologist and TeleQuest Affiliates. All patients
who receive medical services at the Center shall be billed on a "global" basis
fee which includes the fee for both Radiologist's medical services and for the
services rendered by the Center.
7. TERM; EXCLUSIVITY.
(A) TERM. This Agreement shall commence on the Effective
Date and shall continue in force through the third anniversary of the
Effective Date unless terminated in accordance with Section 10 hereof.
In the event that Orange Park is sold to another party ("Successor")
during the term of this agreement, this Agreement shall continue in
full force and effect. During the term of the Agreement, TeleQuest
shall not enter into any other agreements to provide Radiology
Services within a fifteen mile radius of the Facility.
(B) EXCLUSIVITY. During the term of this Agreement, the
Facility shall not enter into any other contractual agreements for
the provision of Radiology Services, and TeleQuest shall have the
exclusive right to provide TeleQuest Services, and to arrange for the
provision of Radiology Services, to the Facility.
8. INDEMNIFICAITON. TeleQuest agrees to indemnify, defend and
hold Orange Park and its officers, trustees, employees and agents harmless from
any and all claims, actions, liabilities, loss, damages for personal injury or
property damages, and expenses (including reasonable attorney's fees), which
are or may be brought against Orange Park: (i) which arise or may arise as a
result of any conduct, acts or omissions of TeleQuest PC, the TeleQuest
Radiologists, or any Radiologist, any TeleQuest Affiliate, of any other person
providing services on behalf of TeleQuest pursuant to or in breach of this
Agreement; and (ii) for any criminal conduct or intentional wrongdoing by
TeleQuest, TeleQuest PC, the TeleQuest Radiologists, any Radiologist, any
TeleQuest Affiliate, or any other person providing services or any TeleQuest
Affiliate pursuant to this Agreement. Orange Park agrees to indemnify, defend
and hold TeleQuest, TeleQuest PC, the TeleQuest Radiologists, the Radiologists,
the TeleQuest Affiliates, and their respective officers, trustees, directors,
employees, agents ( the "Indemnified Parties") harmless from and against any
and all claims, actions, liabilities, losses, or damages for personal injury or
property damaged and expenses (including reasonable attorney's fees), which are
or may be brought against the Indemnified Parties: (i) which arise or may
arise as a direct result of any conduct, acts, or ommisions of Orange Park or
any of its employees,
<PAGE> 4
agents, director, or contractors, or any other person providing services
pursuant to or in breach of the Agreement; and (ii) for any criminal conduct or
intentional wrongdoing by Orange Park or any of its employees, agents,
directors, or contractors, or any other person providing services pursuant to
this agreement.
9. LIABILITY INSURANCE. TeleQuest shall require in its
Participation Agreements that TeleQuest PC and each TeleQuest Affiliate and
Radiologist shall obtain, and keep in force without cost to Orange Park, a
policy of professional liability (malpractice) insurance with a minimum
coverage of $1,000,000 for each claim and $3,000,000 annually for the aggregate
of all claims. Such insurance shall include coverage for "nose" and "tail"
insurance (if a claims-made policy) and shall be kept in full force and effect
notwithstanding a termination of this Agreement for any and all applicable
periods of limitation, so as to therafter provide coverage for claims and
lawsuits arising out of services performed during the term hereof.
10. TERMINATION OF AGREEMENT. This Agreement may be terminated by
either Party in accordance with the following provisions:
(A) TERMINATION BY MUTUAL AGREEMENT. At any time by the
mutual written agreement of Orange Park (or the Successor) and
TeleQuest.
(B) TERMINATION FOR BREACH . In the event of a material
breach by a Party or the Successor, the non-breaching Party may, at
any time after having given thirty (30) days written notice breach to
the other Party and the breaching party having failed to cure such
alleged breach within such thiry (30) day period, terminate this
Agreement without any further written notice of termination.
(C) TERMINATION WITHOUT CAUSE. This Agreement may be
terminated by either Party (or the Successor) without cause
following the first anniversary of the Effective Date, provided that
the terminating party has first given written notice at least sixty
(60) days in advance of the proposed termination date. If the
Agreement is terminated by Orange Park or the Successor, Orange Park
or the Successor will pay TeleQuest (i) $23,335 if terminated prior to
the second anniversary of the agreement, and (ii) $11,665 if
terminated prior to the third anniversary of the agreement, in
reimbursement of expenses incurred by TeleQuest to buy-out the
professional services contract of Dr. Robert Marshall.
Should Orange Park or the Successor terminate this Agreement
prior to the third Anniversary of the Effective Date for any reason
other than due to a material breach by TeleQuest, Orange Park or the
Successor shall reimburse TeleQuest for its costs to deinstall the
equipment listed on "Exhibit A", which may include (i) the costs of
terminating any rental and service contracts existing on the equipment
and (ii) the fair market value of any equipment owned by TeleQuest,
where upon TeleQuest shall transfer to Orange Park or the Successor
the associated equipment.
(D) TERMINATION COMPENSAITON. Upon contract termination
for whatever reason and in addition to any payments as described in
paragraphs (10a)(10b) and (10c) the Center agrees to pay TeleQuest for
any readings which TeleQuest performed under the contract in
accordance with the terms set forth in paragaph 5 of this agreement.
Payments will be paid monthly on fourteen (14%) of collections for
those readings performed by TeleQuest only. These payments will
continue based on collections for a period of one year from date of
contract termination. Telequest will not be entitled to any payment
therafter for future collections. Upon contract termination the
Center will not be obligated to pay any minimum fee per month.
<PAGE> 5
11. ACCESS TO RECORDS. Upon reasonable notice and during normal
business hours, each Party may inspect the books and records of the other which
are necessary to document compliance with the terms of this Agreement, subject
to the provisions of Section 12 below. The Parties agree that any data,
slides, films, radiological materials, or other patient information received by
the TeleQuest Affiliate (whether in tangible of electronic form) shall be and
remain the property of Orange Park unless otherwise agreed by the Parties. The
Parties agree to provide each other reasonable access to their records to the
extent any claim or cause of action is brought against a Party arising out of
or related to Radiology Services or TeleQuest Services furnished or alleged
to have been furnished pursuant to this Agreement, subject to any applicable
laws regarding confidentiality of medical records. Orange Park agrees to
maintain its patient medical records in accordance with all state and federal
statutes and regulations and any accrediting body standards applicable to
Orange Park and the Facility, but in no event for less than the the statute of
limitations applicable in the state of Florida for medical malpractice as
applicable to each patient.
12. CONFIDENTIALITY. For purposes of this Agreement, and subject
to subparagraph 12(b) below, the term "Confidential Information" means any
confidential or propriety information of TeleQuest or Orange Park, including,
without limitation, this Agreement, including any term, condition or exhibit
thereof, patient records, symbols, trademarks, service marks, designs,
management information systems, utilization procedures, and protocols, forms
and claims processing techniques, utilization review and quality assurance
mechanisms and data, agreements with managed care organizations and purchases
of services, education programs related to the activities of either Party, any
information related to either Party's financial affairs, business and marketing
plans and strategies, contract negotiations with managed care organizations,
fee schedules, and any other information that either Party considers to be a
trade secret or confidential information.
(A) PROTECTION OF CONFIDENTIAL INFORMATION. All
Confidential Information received by either Party (the "Receiving
Party") pursuant to this Agreement shall be restricted in accordance
herewith, and Receiving Party agrees to use such Confidential
Information solely for the limited purpose described in this
Agreement. Receiving Party agrees that any Confidential Information
received from the other Party (the "Disclosing Party") is the
exclusive property of the Disclosing Party, and Receiving Party shall
not have any ownership interest therein. Receiving Party agrees not
to use, employ, or in any manner or form disclose, publish, or
otherwise make available in any manner in whole or in part, any
Confidential Information of the Disclosing Party. Receiving Party
shall not have the right to print or copy, in whole or in part, any
Confidential Information of the Disclosing Party, or any documentation
pertaining thereto. Receiving Party agrees to take appropriate
action, whether by instruction, agreement, or otherwise to ensure the
protection, confidentiality, and security of the Confidential
Information of the Disclosing Party. Receiving Party agrees to use
the same care with the Disclosing Party's Confidential Information
which it uses for its own proprietary and trade secret information.
All notes, data, reference materials, sketches, drawings, memoranda,
documentation, and records relating to any of its Confidential
Information shall belong exclusively to Disclosing Party, and
Receiving Party agrees to turn over to Disclosing Party all such
Confidential Information and copies thereof in its possession at the
request of Disclosing Party.
(B) EXCEPTION TO CONFIDENTIALITY. The confidentiality
restrictions of this Agreement shall not apply to any document or
information if such document or information (i) was known to Receiving
Party, as evidence by receiving Party's written records, prior to the
receipt of such document or information from Disclosing Party, (ii)
was publicly available at the time of the disclosure of such document
to Receiving Party or subsequently became publicly available through
no fault of receiving Party, (iii) was approved for public disclosure
by the written authorization of
<PAGE> 6
Disclosing Party, (iv) was or became available to receiving Party or
its agent from a nonconfidential source, or (v) is required to be
disclosed by law, any state agency third party reimbursement agencies
or professional organizations, or pursuant to subpoena or proper court
order.
13. RENEGOTIATION. If TeleQuest's counsel determines that the
ability of the Parties hereto to fulfill their respective obligations
hereunder, or payment by Orange Park, are (or are likely to be ) adversely
impacted by the requirement of any federal, state, or local law, rule, or
regulation, or published official interpretation of any of the foregoing, as
applied to this Agreement, then, at the option of TeleQuest, the Parties shall
negotiate to amend this Agreement in a manner which will, if possible, avoid
such adverse impact, while maintaining the essential benefits intended to be
afforded hereby. If this Agreement is not so amended prior to the effective
date of such requirement or within thirty (30) days after TeleQuest's notice
under this section, whichever shall first occur, then this Agreement shall
terminate, at the option of TeleQuest, as of such date.
14. MISCELLANEOUS
(A) GOVERNING LAW. This agreement shall be constructed,
enforced, and governed in accordance with the laws of the State of
Florida.
(B) COSTS AND ATTORNEY'S FEES. Except as otherwise
provided in this Agreement in the event that suit is brought in any
court to determine or enforce rights or obligations or damages under
this Agreement, or any arbitration proceeding occurs, the parties
agree that the court or arbitrator shall award reasonable costs and
attorney's fees to the prevailing party.
(C) SEVERABILITY CLAUSE. In the event any term or
provision of this Agreement is found to be unenforceable or void, in
whole or in part, as drafted, then the offending term or provision
shall be constructed as valid and enforceable to the maximum extent
permitted by law, and the balance of this Agreement shall remain in
full force and effect, unless such a construction would materially
affect the rights or obligations of either party hereto.
(D) AMENDMENTS; ASSIGNMENT. Amendments may be made to
this Agreement but only after the mutual approval in writing by
Orange Park and TeleQuest. This Agreement shall be assignable upon
mutual agreement of the Parties.
(E) PARAGRAPH HEADINGS. The Paragraph headings contained
in this Agreement are for convenience only and shall in no manner be
construed as a part of this Agreement.
(F) ENTIRE AGREEMENT. This Agreement supersedes all
prior discussions and agreements between Orange Park, or any of its
managers, directors, employees, or agents, and TeleQuest or any of its
officers, directors, employees, or agents, with respect to all matters
contained herein. Any representation, inducement, promise, or
agreement, whether oral or written, between Orange Park, or and of its
officers, directors, employees, or agents, and TeleQuest, or any of
its officers, directors, employees, or agents herein shall be of no
force or effect.
(G) NOTICES. All notices, payments, and other
communications required or permitted under the Agreement shall be
deemed given and received if delivered in person or by first-
<PAGE> 7
class United States Mail, postage prepaid and either registered or
certified, and addressed:
TeleQuest: 3600 Market Street, Suite 370
Philadelphia, PA 19104
Attn: President
Orange Park: Orange Park Diagnostic Center
1996 Kingsley Ave.
Orange Park, FL 32073
Attn: President
(H) PRACTICE OF MEDICINE. The Parties understand,
acknowledge, and agree that in furnishing the TeleQuest Services,
TeleQuest is not engaged in the practice of medicine and is not
undertaking to render any medical services in this Agreement, any
provision hereof to the contrary notwithstanding.
(I) COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original,
and all of which together shall constitute one and the same
instrument.
{remainder of page intentionally left blank}
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
TELEQUEST, INC.
a Delaware corporation
By: /s/ William Straub
---------------------------------
Its Authorized Officer
ORANGE PARK DIAGNOSTIC CENTER, LTD.
a Florida corporation
By: /s/ Curtis L. Alliston
--------------------------------
Its Authorized Officer
<PAGE> 9
EXHIBIT "A"
TO PROFESSIONAL SERVICES AGREEMENT
EQUIPMENT
EQUIPMENT FOR ORANGE PARK DIAGNOSTIC CENTER
1 Lumiscan 75/150 Film Digitizer and Film Digitizer Workstations
1 Frame Grabbers plus Workstation to connect 2 CTs and 1 MR
2 Computer terminal for radiological Information System Access
Cabling for Local Area Network
Wide Area Network Installation
1 Laser Printer and Network Connections
<PAGE> 1
EXHIBIT 10.41
PROFESSIONAL SERVICES AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of the 29
day of January , 1997, to be effective on February 1 , 1997 (the
"Effective Date") by and between TELEQUEST, INC. ("TeleQuest"), a Delaware
corporation and BRANDON DIAGNOSTIC CENTER, a Florida corporation("Brandon."),
(with TeleQuest and Brandon Diagnostic Center being also referred to singularly
as "Party" and collectively as "Parties").
W I T N E S S E T H:
WHEREAS, Brandon is in the business of providing medical imaging
services in Brandon, Florida (the "Facility"), which require both on-site and
remote diagnostic radiology services,
WHEREAS, TeleQuest is in the business of arranging for the provision
of on-site and remote diagnostic radiology services through independent
contractor relationships with professional corporations and radiology
departments of academic medical institutions; and
WHEREAS, TeleQuest agrees to arrange for the provision of such
services to Brandon upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, and for other good and valuable consideration,
the adequacy and receipt of which is hereby acknowledged, TeleQuest and Brandon
agree as follows:
1. TELEQUEST'S RESPONSIBILITIES. TeleQuest hereby agrees to
provide services as hereinafter set forth (the "TeleQuest Services"):
(a) PROVISION OF RADIOLOGISTS. TeleQuest agrees to
arrange for the provision of on-site and remote diagnostic radiology
services ("Radiology Services") as follows:
(1) TeleQuest agrees to arrange for the provision
of on-site Radiology Services to Brandon through two (2) radiologists
who will be licensed to practice medicine in the State of Florida
("TeleQuest Radiologists"), and who will be employees of TeleQuest
Associates, P.C., a Pennsylvania professional corporation qualified to
do business in the State of Florida ("TeleQuest PC"). The TeleQuest
Radiologist will be physically present at Brandon during the days and
times mutually agreed upon by TeleQuest and Brandon in writing.
(2) TeleQuest further agrees to arrange for the
provision of remote Radiology Services to Brandon, by Radiologists who
are either board certified or eligible for board certification as
radiologists and who are currently licensed to practice medicine
("Radiologist or Radiologists") at one or more academic medical
institutions ("TeleQuest Affiliates").
(B) COOPERATION WITH BRANDON. TeleQuest agrees, and
shall use its best efforts to cause TeleQuest PC, the TeleQuest
Radiologists, and all Radiologists and TeleQuest Affiliates to agree,
to reasonably cooperate with Brandon in its efforts to obtain
accreditation for the Facility by the Joint Commission on the
Accreditation of Healthcare Organizations ("JCAHO"), and to reasonably
assist in the quality management activities of the Facility.
<PAGE> 2
(C) TRAINING PROGRAMS. TeleQuest shall, if requested by
Brandon and agreed to by TeleQuest, provide training to the
radiological staff by or contracting with the Facility. Such training
shall be provided either onsite or at a TeleQuest Affiliate, at
TeleQuest's sole discretion. Any cost incurred by TeleQuest in
providing such training shall be paid by Brandon promptly upon receipt
of invoice therefore, unless agreed by the Parties.
(D) EQUIPMENT. During the term of this Agreement,
TeleQuest shall provide and maintain teleradiolgy equipment
necessary (in TeleQuest's sole judgement) for the provision of remote
Radiology Services pursuant to this Agreement, which is described on
Exhibit "A" attached hereto and made a part hereof, at TeleQuest's
expense. Such Equipment is and shall remain the sole property of
TeleQuest, unless such equipment is transferred to Brandon pursuant to
the provisions of Section 10 of this Agreement.
(E) COSTS OF SERVIES. TeleQuest shall pay all
telecommunication costs for transmission of teleradiology
studies.
(F) COMMUNITY OUTREACH. TeleQuest and Brandon shall work
cooperatively to develop communtiy awareness of the radiology
services offered by Brandon and TeleQuest in the Facility's service
areas. Additionally, TeleQuest will use its best efforts to make
members of TeleQuest Affiliates' medical staff available to
participate in programs in the Facility's service areas which will
inform physicians of the services provided by Brandon and TeleQuest.
The cost of this community outreach shall be divided among the
Parties hereto as they mutually agree.
2. BRANDON'S RESPONSIBILITIES. Brandon hereby agrees
to the following:
(a) FACILITIES. Brandon shall furnish such equipment and
apparatus for the Facility as is necessary, in the sole and absolute
discretion of Brandon, for the operation of the Facility and shall
keep same in good repair. All costs for the operation of the
Facility (except those specifically assumed by TeleQuest herein) shall
be the responsibility of Brandon. Brandon shall obtain and maintain
all necessary licenses and permits to operate the Facility, and shall
at all times operate the Facility in compliance with all applicable
laws and regulation.
(b) STAFFING. Brandon shall employ, engage and
compensate all personnel (except for the TeleQuest Radiologist) which
may be required for the operation of the Facility, the number of which
shall be determined by Brandon.
(C) COST OF SERVICES. Brandon shall be responsible for
all overnight mail costs incurred in transmitting data, films, and
related information between the parties pursuant to this Agreement.
Brandon will be responsible for all costs of transcription services.
3. INDEPENDENT CONTRACTOR RELATIONSHIP. Notwithstanding any
provision herein to the contrary, the Parties agree that TeleQuest, TeleQuest
PC, the TeleQuest Radiologists, the Radiologists and the TeleQuest Affilitate,
are and shall be retained as independent contractors with respect to the
services, including the Radiology Services, performed in connection with this
Agreement. Except as otherwise expresssly provided in this Agreement. Except
as otherwise provided in this Agreement, including Section 1 above, Brandon
shall not have the right to control the professional judgement of the TeleQuest
Radiologists or the Radiologists or the manner or method by which the TeleQuest
Radiologist or the Radiologists shall provide Radiology Services under this
Agreement.
<PAGE> 3
4. EXPENSES. Except as specified in Section 1 or 2, Brandon
shall not be responsible for any expenses incurred by TeleQuest, TeleQuest PC,
or any Radiological or TeleQuest Affiliates in the performance of Radiology
Services under this Agreement.
5. COMPENSATION. Brandon shall pay to TeleQuest, on a monthly
basis, fourteen percent (14%) of gross collected revenues received by the
center for services performed, minus refunds, and minus fees for
echocardiograms and nuclear medicine cardiology studies for which Radiologists
does not proved reading and interpretation, or any other diagnostic studies or
procedures added to the array of radiological services offered by the Center
which Radiologist does not provide reading and interpretation. Commencing
ninety days after the effective date, in any give month thereafter during the
term of this agreement if fourteen percent (14%) of gross collected revenues
are not at least $30,000 Brandon will pay the difference to the extent that a
minimum payment of $30,000 is made to TeleQuest. TeleQuest and Brandon shall
review collected revenues on a quarterly basis.
6. CHARGES AND BILLING. The Parties shall acknowledge and agree
that Brandon is the owner of, and is responsible for the billing and collection
for all fees due to the Center for services performed at the Center, including
but not limited to the services performed by TeleQuest, TeleQuest PC, TeleQuest
Radiologists, the Radiologist and TeleQuest Affiliates. All patients who
receive medical services at the Center shall be billed on a "global" basis fee
which includes the fee for both Radiologist's medical services and for the
services rendered by the Center.
7. TERM; EXCLUSIVITY.
(a) TERM. This Agreement shall commence on the Effective
Date and shall continue in force through the third anniversary of the
Effective Date unless terminated in accordance with Section 10 hereof.
In the event that Brandon is sold to another party ("Successor")
during the term of this agreement, this Agreement shall continue in
full force and effect. During the term of the Agreement, TeleQuest
shall not enter into any other agreements to provide Radiology
Services within a fifteen mile radius of the Facility.
(b) EXCLUSIVITY. During the term of this Agreement, the
Facility shall not enter into any other contractual agreements for
the provision of Radiology Services, and TeleQuest shall have the
exclusive right to provide TeleQuest Services, and to arrange for the
provision of Radiology Services, to the Facility.
8. INDEMNIFICAITON. TeleQuest agrees to indemnify, defend and
hold Brandon and its officers, trustees, employees and agents harmless from any
and all claims, actions, liabilities, loss, damages for personal injury or
property damages, and expenses (including reasonable attorney's fees), which
are or may be brought against Brandon: (i) which arise or may arise as a result
of any conduct, acts or omissions of TeleQuest PC, the TeleQuest Radiologists,
or any Radiologist, any TeleQuest Affiliate, of any other person providing
services on behalf of TeleQuest pursuant to or in breach of this Agreement; and
(ii) for any criminal conduct or intentional wrongdoing by TeleQuest,
TeleQuest PC, the TeleQuest Radiologists, any Radiologist, any TeleQuest
Affiliate, or any other person providing services or any TeleQuest Affiliate
pursuant to this Agreement. Brandon agrees to indemnify, defend and hold
TeleQuest, TeleQuest PC, the TeleQuest Radiologists, the Radiologists, the
TeleQuest Affiliates, and their respective officers, trustees, directors,
employees, agents (the "Indemnified Parties") harmless from and against any and
all claims, actions, liabilities, losses, or damages for personal injury or
property damaged and expenses (including reasonable attorney's fees), which are
or may be brought against the Indemnified Parties: (i) which arise or may
arise as a direct result of any conduct, acts, or ommisions of Brandon or any
of its employees, agents,
<PAGE> 4
director, or contractors, or any other person providing services pursuant to
or in breach of the Agreement; and (ii) for any criminal conduct or intentional
wrongdoing by Brandon or any of its employees, agents, directors, or
contractors, or any other person providing services pursuant to this
agreement.
9. LIABILITY INSURANCE. TeleQuest shall require in its
Participation Agreements that TeleQuest PC and each TeleQuest Affiliate and
Radiologist shall obtain, and keep in force without cost to Brandon, a policy
of professional liability (malpractice) insurance with a minimum coverage of
$1,000,000 for each claim and $3,000,000 annually for the aggregate of all
claims. Such insurance shall include coverage for "nose" and "tail" insurance
(if a claims-made policy) and shall be kept in full force and effect
notwithstanding a termination of this Agreement for any and all applicable
periods of limitation, so as to therafter provide coverage for claims and
lawsuits arising out of services performed during the term hereof.
10. TERMINATION OF AGREEMENT. This Agreement may be terminated by
either Party in accordance with the following provisions:
(a) TERMINATION BY MUTUAL AGREEMENT. At any time by the
mutual written agreement of Brandon (or the Successor) and TeleQuest.
(b) TERMINATION FOR BREACH . In the event of a material
breach by a Party or the Successor, the non-breaching Party may, at
any time after having given thirty (30) days written notice breach to
the other Party and the breaching party having failed to cure such
alleged breach within such thiry (30) day period, terminate this
Agreement without any further written notice of termination.
(c) TERMINATION WITHOUT CAUSE. This Agreement may be
terminated by either Party (or the Successor) without cause following
the first anniversary of the Effective Date, provided that the
terminating party has first given written notice at least sixty (60)
days in advance of the proposed termination date. If the Agreement is
terminated by Brandon or the Successor, Brandon or the Successor will
pay TeleQuest (i) $80,000 if terminated prior to the second
anniversary of the agreement, and (ii) $40,000 if terminated prior to
the third anniversary of the agreement, in reimbursement of expenses
incurred by TeleQuest to buy-out the professional services contract of
Dr. Robert Marshall.
Should Brandon or the Successor terminate this Agreement prior
to the third Anniversary of the Effective Date for any reason other
than due to a material breach by TeleQuest, Brandon or the Successor
shall reimburse TeleQuest for its costs to deinstall the equipment
listed on "Exhibit A", which may include (i) the costs of terminating
any rental and service contracts existing on the equipment and (ii)
the fair market value of any equipment owned by TeleQuest, where upon
TeleQuest shall transfer to Brandon or the Successor the associated
equipment.
(d) TERMINATION COMPENSAITON. Upon contract termination
for whatever reason and in addition to any payments as described in
paragraphs (10a)(10b) and (10c) the Center agrees to pay TeleQuest for
any readings which TeleQuest performed under the contract in
accordance with the terms set forth in paragaph 5 of this agreement.
Payments will be paid monthly on fourteen (14%) of collections for
those readings performed by TeleQuest only. These payments will
continue based on collections for a period of one year from date of
contract termination. Telequest will not be entitled to any payment
therafter for future collections. Upon contract termination the
Center will not be obligated to pay any minimum fee per month.
<PAGE> 5
11. ACCESS TO RECORDS. Upon reasonable notice and during normal
business hours, each Party may inspect the books and records of the other which
are necessary to document compliance with the terms of this Agreement, subject
to the provisions of Section 12 below. The Parties agree that any data,
slides, films, radiological materials, or other patient information received by
the TeleQuest Affiliate (whether in tangible of electronic form) shall be and
remain the property of Brandon unless otherwise agreed by the Parties. The
Parties agree to provide each other reasonable access to their records to the
extent any claim or cause of action is brought against a Party arising out of
or related to Radiology Services or TeleQuest Services furnished or alleged
to have been furnished pursuant to this Agreement, subject to any applicable
laws regarding confidentiality of medical records. Brandon agrees to maintain
its patient medical records in accordance with all state and federal statutes
and regulations and any accrediting body standards applicable to Brandon and
the Facility, but in no event for less than the the statute of limitations
applicable in the state of Florida for medical malpractice as applicable to
each patient.
12. CONFIDENTIALITY. For purposes of this Agreement, and subject
to subparagraph 12(b) below, the term "Confidential Information" means any
confidential or propriety information of TeleQuest or Brandon, including,
without limitation, this Agreement, including any term, condition or exhibit
thereof, patient records, symbols, trademarks, service marks, designs,
management information systems, utilization procedures, and protocols, forms
and claims processing techniques, utilization review and quality assurance
mechanisms and data, agreements with managed care organizations and purchases
of services, education programs related to the activities of either Party, any
information related to either Party's financial affairs, business and marketing
plans and strategies, contract negotiations with managed care organizations,
fee schedules, and any other information that either Party considers to be a
trade secret or confidential information.
(a) PROTECTION OF CONFIDENTIAL INFORMATION. All
Confidential Information received by either Party ( the "Receiving
Party") pursuant to this Agreement shall be restricted in accordance
herewith, and Receiving Party agrees to use such Confidential
Information solely for the limited purpose described in this
Agreement. Receiving Party agrees that any Confidential Information
received from the other Party (the "Disclosing Party") is the
exclusive property of the Disclosing Party , and Receiving Party shall
not have any ownership interest therein. Receiving Party agrees not
to use, employ, or in any manner or form disclose, publish, or
otherwise make available in any manner in whole or in part, any
Confidential Information of the Disclosing Party. Receiving Party
shall not have the right to print or copy, in whole or in part, any
Confidential Information of the Disclosing Party, or any documentation
pertaining thereto. Receiving Party agrees to take appropriate
action, whether by instruction, agreement, or otherwise to ensure the
protection, confidentiality, and security of the Confidential
Information of the Disclosing Party. Receiving Party agrees to use
the same care with the Disclosing Party's Confidential Information
which it uses for its own proprietary and trade secret information.
All notes, data, reference materials, sketches, drawings, memoranda,
documentation, and records relating to any of its Confidential
Information shall belong exclusively to Disclosing Party, and
Receiving Party agrees to turn over to Disclosing Party all such
Confidential Information and copies thereof in its possession at the
request of Disclosing Party.
(b) EXCEPTION TO CONFIDENTIALITY. The confidentiality
restrictions of this Agreement shall not apply to any document or
information if such document or information (i) was known to Receiving
Party, as evidence by receiving Party's written records, prior to the
receipt of such document or information from Disclosing Party, (ii)
was publicly available at the time of the disclosure of such document
to Receiving Party or subsequently became publicly available through
no fault of receiving Party, (iii) was approved for public disclosure
by the written authorization of
<PAGE> 6
Disclosing Party, (iv) was or became available to receiving Party or
its agent from a nonconfidential source, or (v) is required to be
disclosed by law, any state agency third party reimbursement agencies
or professional organizations, or pursuant to subpoena or proper court
order.
13. RENEGOTIATION. If TeleQuest's counsel determines that the
ability of the Parties hereto to fulfill their respective obligations
hereunder, or payment by Brandon, are (or are likely to be ) adversely impacted
by the requirement of any federal, state, or local law, rule, or regulation, or
published official interpretation of any of the foregoing, as applied to this
Agreement, then, at the option of TeleQuest, the Parties shall negotiate to
amend this Agreement in a manner which will, if possible, avoid such adverse
impact, while maintaining the essential benefits intended to be afforded
hereby. If this Agreement is not so amended prior to the effective date of
such requirement or within thirty (30) days after TeleQuest's notice under this
section, whichever shall first occur, then this Agreement shall terminate, at
the option of TeleQuest, as of such date.
14. MISCELLANEOUS
(a) GOVERNING LAW. This agreement shall be constructed,
enforced, and governed in accordance with the laws of the State of
Florida.
(b) COSTS AND ATTORNEY'S FEES. Except as otherwise
provided in this Agreement in the event that suit is brought in any
court to determine or enforce rights or obligations or damages under
this Agreement, or any arbitration proceeding occurs, the parties
agree that the court or arbitrator shall award reasonable costs and
attorney's fees to the prevailing party.
(c) SEVERABILITY CLAUSE. In the event any term or
provision of this Agreement is found to be unenforceable or void, in
whole or in part, as drafted, then the offending term or provision
shall be constructed as valid and enforceable to the maximum extent
permitted by law, and the balance of this Agreement shall remain in
full force and effect, unless such a construction would materially
affect the rights or obligations of either party hereto.
(d) AMENDMENTS; ASSIGNMENT. Amendments may be made to
this Agreement but only after the mutual approval in writing by
Brandon and TeleQuest. This Agreement shall be assignable upon mutual
agreement of the Parties.
(e) PARAGRAPH HEADINGS. The Paragraph headings contained
in this Agreement are for convenience only and shall in no manner be
construed as a part of this Agreement.
(f) ENTIRE AGREEMENT. This Agreement supersedes all
prior discussions and agreements between Brandon, or any of its
managers, directors, employees, or agents, and TeleQuest or any of
its officers, directors, employees, or agents, with respect to all
matters contained herein. Any representation, inducement, promise, or
agreement, whether oral or written, between Brandon, or and of its
officers, directors, employees, or agents, and TeleQuest, or any of
its officers, directors, employees, or agents herein shall be of no
force or effect.
(g) NOTICES. All notices, payments, and other
communications required or permitted under the Agreement shall be
deemed given and received if delivered in person or by first-
<PAGE> 7
class United States Mail, postage prepaid and either registered or
certified, and addressed:
TeleQuest: 3600 Market Street, Suite 370
Philadelphia, PA 19104
Attn: President
Brandon: Brandon Diagnostic Center
747B W. Brandon Blvd.
Brandon, FL 33511
Attn: President
(h) PRACTICE OF MEDICINE. The Parties understand,
acknowledge, and agree that in furnishing the TeleQuest Services,
TeleQuest is not engaged in the practice of medicine and is not
undertaking to render any medical services in this Agreement, any
provision hereof to the contrary notwithstanding.
(I) COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, and
all of which together shall constitute one and the same instrument.
{remainder of page intentionally left blank}
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
TELEQUEST, INC.
a Delaware corporation
By: /s/ William Straub
-----------------------------
Its Authorized Officer
BRANDON DIAGNOSTIC CENTER
a Florida corporation
By: /s/ Curtis L. Alliston
-----------------------------
Its Authorized Officer
<PAGE> 9
EXHIBIT "A"
TO PROFESSIONAL SERVICES AGREEMENT
EQUIPMENT
EQUIPMENT FOR BRANDON DIAGNOSTIC CENTER
1 Lumiscan 75/150 Film Digitizer and Film Digitizer Workstations
1 Frame Grabbers plus Workstation to connect 2 CTs and 1 MR
2 Computer terminal for radiological Information System Access
Cabling for Local Area Network
Wide Area Network Installation
1 Laser Printer and Network Connections
<PAGE> 1
EXHIBIT 10.42
SECURED PROMISSORY NOTE
$205,000.00 February 18, 1997
FOR VALUE RECEIVED, the undersigned ("Maker") promises to pay to the order
or DVI Business Credit Corporation ("Payee") at 4041 MacArthur Blvd., Suite
401, Newport Beach, CA 92660, or at such other address as the holder of this
Note shall direct, the principal sum of Two Hundred Five Thousand and 00/100
Dollars ($205,000.00), which includes an origination fee of 2.5% ($5,000.00).
The Note is payable at $7,500.00 (inclusive of principal and interest) per week
for twenty-eight consecutive weeks commencing on February 25, 1997, and payable
on the first day of each succeeding week, until August 29, 1997 (the "Maturity
Date"). All amounts due and payable under this Note shall be deducted from the
lockbox/deposit account pursuant to Section 2.6 of the Security Agreement as
defined below. On the Maturity Date the entire remaining principal balance of
this Note plus any and all accrued and unpaid interest, shall be due ad
payable. This Note is secured by that certain Revolving Loan and Security
Agreement between the Maker and Payee dated as of September 13, 1996
(collectively, the "Security Agreement").
This Note shall bear interest on the unpaid principal balance hereof at
the fluctuation rate of interest announced publicly by Bank of America NT&SA in
San Francisco, California, form time to time as its base rate plus three
percent (3.0%) per annum, computed on the basis of a 360-day year and actual
days elapsed, until paid. Any accrued interest not paid when due shall bear
interest at the same rate as the principal hereunder.
Principal and interest on this Note shall be payable in lawful money of
the Unites Sates of America. If a payment hereunder becomes due and payable on
a Saturday, Sunday or legal holiday the due date thereof shall be extended to
the next succeeding business day, and interest shall be payable thereon during
such extension.
In the event any payment of principal or interest on this Note is not paid
in full when due, or if any other default or event of default occurs hereunder,
under the Security Agreement or under any other present or future instrument,
document, or agreement between Maker and Payee (collectively, "Events of
Default"), Payee may, at its option, at any time thereafter, declare the entire
unpaid principal balance of this Note plus all accrued interest to be
immediately due and payable, without notice or demand. Without limiting the
foregoing, and without limiting Payee's other rights and remedies, in the event
any installment of principal or interest is not paid in full on or before the
date due, Maker agrees that it would be impracticable or extremely difficult to
fix the actual damages resulting therefrom to Payee, and therefore the Maker
agrees immediately to pay to Payee an amount equal to 5% of the installment (or
portion therof), not paid, as liquidated damages, to compensate Payee for the
internal administratve expenses in administering the default. The acceptance
of any installment of principal or interest by Payee after the time when it
becomes due, as herein specified, shall not be held to establish a custom, or
to waive any right of Payee to enforce payment when due of any further
installments or any other rights, nor shall any failure or delay to exercise an
rights be held to waive the same. Without limiting Payee's other rights and
remedies, following the occurance of an Event of Default, the interest rate
hereunder
<PAGE> 2
shall increase by an additional 2% per annum until such Event of Default has
been cured.
All Payments herunder are to be applied first to costs and fees referred
to herunder, second to the payment of accrued interset and the remaining
balance to the payments of principal. Any principal prepayment hereunder shall
be applied against principal payments in the inverse order of maturity. Payee
shall have the continuing and exclusive right to apply or reverse and reapply
any and all payments herunder.
Upon execution hereof, Maker will pay to Payee an origination fee equal to
three percent (3.0%) of the Note amount and a daily over-advance fee of one
hundred dollars ($100.00).
Maker agrees to pay all costs and expenses (including without limitation
attorney's fees) incurred by Payee in connection with or related to this Note,
or its enforcement, whether or not suit be brought. Maker hereby waives
presentment, demand for payment, notice of dishonor, notice of nonpayment,
protest, and any and all other notices and demands in connection with the
delivery, acceptance, performance, default or enforcement of this Note, and
Maker herby waives the benefits of any statute of limitations with respect to
any action to enforce, or otherwise related to, this Note.
This Note is secured by the Security Agreement and all other present and
future security agreements between Maker and Payee. Nothing herein shall be
deemed to limit any of the terms or provisions of the Security Agreeement, or
any other present or future document, instrument or agreement, between Maker
and Payee, and all of Payee's rights and remedies herunder and thereunder are
cumulative. In the event that the interest set forth in this Note, including
any interest on accrued but unpaid interest, is in excesss of the then legal
maximum rate, then that portion of such interest in excess of the then legal
maximum rate shall be deemed a payment of principal and applied against the
principal of the Note.
In the event of any one or more of the provisions of this Note shall for
any reason be held to be invalid, illegal or unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
No waiver or modificaiton of any of the terms or provisions of this Note
shall be valid or binding unless set forth in a writing signed by a duly
authorized officer of Payee, and then only to the extent therein specifically
set forth. If more than one person executes this Note, their obligations
hereunder shall be joint and several.
THIS NOTE HAS BEEN DELIVERED FOR ACCEPTANCE BY PAYEE IN ORANGE COUNTY,
CALIFORNIA AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISONS) OF THE STATE OF
CALIFORNIA, AS THE SAME MAY FROM TIME TO TME BE IN EFFECT. MAKER HEREBY (i)
IRREVOCABLY SUMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN
ORANGE COUNTY, CALIFORNIA OVER ANY ACTION OR PROCEEDING ARISING FROM OR RELATED
TO THIS NOTE; (ii) WAIVES PERSONAL SERVICE OF ANY AND ALL
<PAGE> 3
PROCESS UPON MAKER, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY
MESSENGER, CERTIFIED MAIL OR REGISTERED MAIL DIRECTED TO MAKER AT THE ADDRESS
SET FORTH BELOW AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETE UPON THE
EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME SHALL HAVE BEEN
POSTED TO MAKER'S ADDRESS; (iii) IRREVOCABLY WAIVES , TO THE FULLEST EXTENT
MAKER MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCOVENIENT FORUM TO THE
MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING; (iv) AGREES THAT A FINAL
JUDGEMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGEMENT OR IN ANY OTHER
MANNER PROVIDED BY LAW; AND (v) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR
PROCEEDING AGAINST PAYEE OR ANY OF PAYEE'S DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS OR PROPERTY, CONCERNING ANY MATTER ARISING OUT OF OR RELATING TO THIS
NOTE IN ANY COURT OTHER THAN ONE LOCATED IN ORANGE COUNTY, CALIFORNIA. NOTHING
IN THIS PARAGRAPH SHALL AFFECT OR IMPAIR PAYEE'S RIGHT TO SERVE LEGAL PROCESS
IN ANY MANNER PERMITTED BY LAW OR PAYEE'S RIGHT TO BRING ANY ACITON OR
PROCEEDING AGAINST MAKER OR MAKER'S PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
PAYEE, BY ITS ACCEPTANCE OF THIS NOTE, AND MAKER EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACITON OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO: (I) THIS NOTE; OR (II) ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN PAYEE AND MAKER; OR (III) ANY CONDUCT, ACTS OR
OMISSIONS OF PAYEE OR MAKER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH PAYEE OR MAKER; IN EACH
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
NATIONAL DIAGNOSTICS, INC
A Florida corporation
By: /s/ Curtis L. Alliston
--------------------------------
Print Name: Curtis L. Alliston
------------------------
Title: President
-----------------------------
<PAGE> 1
EXHIBIT 21
NATIONAL DIAGNOSTICS, INC. AND SUBSIDIARIES
Schedule of Subsidiaries*
Alpha Associates, Inc.
Alpha Acquisitions, Inc.
SunPoint Diagnostic Center, Inc.
National Diagnostics/Orange Park, Inc
National Diagnostics/Riverside, Inc.
*All incorporated in the State of Florida
Partnerships owned 100%:
Brandon Diagnostic Center, Ltd. (a Florida limited partnership)
Sundance Partners (a Florida general partnership)
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report (which has an explanatory paragraph pertaining to a
going concern uncertainty) dated April 9, 1997, accompanying the consolidated
financial statements included in the Annual Report of National Diagnostics,
Inc. and Subsidiaries, on Form 10-KSB for the year ended December 31, 1996. We
hereby consent to the incorporation by reference of said report in the
Registration Statement of National Diagnostics, Inc. and Subsidiaries on Form
S-8 (File No. 33-80293, effective December 11, 1995).
GRANT THORNTON LLP
Tampa, Florida
April 9, 1997 (Except for
paragraph three of Note 6, as
to which the date is April 25, 1997)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL
DIAGNOSTICS, INC. FINANCIAL STATEMENTS FOR THE YEAR ENDING DECEMBER 31, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB FOR THE YEAR
ENDED DECEMBER 31, 1996
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 104,335
<SECURITIES> 0
<RECEIVABLES> 2,795,686
<ALLOWANCES> 664,402
<INVENTORY> 0
<CURRENT-ASSETS> 2,456,483
<PP&E> 9,481,198
<DEPRECIATION> 3,264,655
<TOTAL-ASSETS> 9,199,677
<CURRENT-LIABILITIES> 4,616,064
<BONDS> 291,956
0
0
<COMMON> 686
<OTHER-SE> 272,332
<TOTAL-LIABILITY-AND-EQUITY> 9,199,677
<SALES> 0
<TOTAL-REVENUES> 8,876,652
<CGS> 0
<TOTAL-COSTS> 4,850,088
<OTHER-EXPENSES> 4,786,332
<LOSS-PROVISION> 28,000
<INTEREST-EXPENSE> 563,951
<INCOME-PRETAX> (1,241,661)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,241,661)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,241,661)
<EPS-PRIMARY> (.48)
<EPS-DILUTED> 0
</TABLE>
